KAI RYSSDAL: They call it living paycheck to paycheck. But what it really is, is living paycheck to almost paycheck. For millions of Americans, the money actually runs out before the next time payday rolls around.
Enter the payday loan. Usually just a couple of hundred dollars, they're designed to cover people when they're in a pinch. But what they actually do is trap people in debt. Diantha Parker reports from Chicago on a new study out today.
DIANTHA PARKER: The report is titled Financial Quicksand, which gives you an idea of what the Center for Responsible Lending thinks of payday loans. Here's how CRL President Mike Calhoun puts it:
MIKE CALHOUN: It's like throwing a drowning person an anvil rather than a life preserver.
Typically, a borrower will take out a $300 loan and the lender will asses a $45 fee. Borrowers who can't pay the loan back on time, will have to take out another loan and pay another fee. This puts them into a cycle of debt, says Calhoun.
CALHOUN: Over 60 percent of the payday loans in the country go to borrowers who take out 12 or more loans every year.
That adds up to more than $4 billion in fees paid to lenders every year. But lenders say people prefer their loans to the alternatives. Lindsey Medsker is spokesperson for the Community Financial Services Association of America, the payday lenders' main trade organization.
LINDSEY MEDSKER: When people are in need of 100 or 200 dollars today but they don't get paid until next Friday, their choices are, you know, write a check and have it bounce, or pay a bill late and be assessed a late fee, or have overdraft protection kick in. And all of those things can be much more expensive than payday lending.
And the new study shows that all one shop needs is about 250 repeat customers per year to make a profit.
In Chicago, I'm Diantha Parker for Marketplace.