Why borrowers turn to pricey payday loans
The Consumer Finance Protection Bureau is looking to make payday and other short-term loans more consumer-friendly. For example, it’s considering creating rules that would require lenders to consider a borrower’s ability to repay the loan and/or limit the number of loans borrowers can take out.
But even without such controls, borrowers keep turning to these services — 12 million borrowers each year, according to the Pew Charitable Trusts. A typical payday borrower might make $30,000 a year and borrow a few hundred dollars to pay their rent or electricity bill. Borrowers may find themselves with unexpected expenses and no other options, says BankRate.com’s Greg McBride, as traditional banks don’t generally make small loans and borrowers may not qualify if they did.
Alternatively, borrowers might decide these loans are the best of limited options, says Dennis Shaul, CEO of the short-term lender trade group Community Financial Services Association of America. Shaul agrees with the CFPB that lenders should evaluate people’s ability to repay loans. Wade Henderson, the president of the Leadership Conference for Civil and Human Rights, says consumers also need other options to meet their borrowing needs.
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