Predatory Lending

Predatory lending strips wealth from financially vulnerable families and leaves them with fewer resources to devote to building assets and climbing the economic ladder. Three of the most prolific and wealth-stripping short-term loan products are payday loans, car-title loans and abusive installment loans. Lenders of these products often charge exorbitant fees and interest rates, lend without regard to borrowers’ ability to repay, continually refinance loans over a short period of time, and commit outright fraud and deception. Borrowers who use predatory short-term loan products often pay more for loans than other consumers. For example, a typical payday loan borrower takes out eight loans of $375 each per year and spends $520 on interest. Research has shown that the average payday borrower remains in debt for more than half of a year—double the length of indebtedness recommended by the Federal Deposit Insurance Corporation (FDIC). States have the power to regulate predatory short-term lending by prohibiting predatory loans or capping them at 36% APR and restricting the number of loans an individual can receive a year, as well as the length of the loan.

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