Borrowers of high-interest payday loans often shell out more in fees than they borrow, a government watchdog says.
About 62% of all payday loans are made to people who extend the loans so many times they end up paying more in fees than the original amount they borrowed, says a report released Tuesday by the Consumer Financial Protection Bureau, a federal agency.
The report shows that more than 80% of payday loans are rolled over or followed by another loan within two weeks. Additional fees are charged when loans are rolled over.
“We are concerned that too many borrowers slide into the debt traps that payday loans can become,” bureau director Richard Cordray said in a statement. “As we work to bring needed reforms to the payday market, we want to ensure consumers have access to small-dollar loans that help them get ahead, not push them farther behind.”
Payday loans, also known as cash advances or check loans, are short-term loans at high interest rates, usually for $500 or less. They often are made to borrowers with weak credit or low incomes, and the storefront businesses often are located near military bases. The equivalent annual interest rates run to three digits.