PHILADELPHIA–New research by The Pew Charitable Trusts has found consumers in four states—Colorado, Hawaii, Ohio, and Virginia— have saved hundreds of millions of dollars in fees while keeping access to credit due to comprehensive reform of payday lending laws in those states.
According to Pew, the findings include:
- Lenders in the “reformed states” profitably offer small loans that are repaid in affordable installments and cost four times less than typical single-payment payday loans that borrowers must repay in full on their next payday.
- While rates nationwide vary drastically by state, lenders continue to charge the maximum allowed by state law and only lower prices where required. Where such requirements are weak or nonexistent, high-cost loans continue to dominate the market, Pew said.
- Reforms passed in Colorado, Hawaii, Ohio, and Virginia prove that effective rules and lower-cost small-dollar loans can save individual borrowers hundreds of dollars each year while maintaining widespread access to credit.
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‘Damaging Effects’
In releasing the findings, Pew noted its “extensive research has identified the damaging effects that unaffordable, single payment loans have on the financial stability of many low and moderate-income consumers.
“Americans spend more than $30 billion to borrow small amounts of money from payday, auto title, and other high-cost lenders,” Pew continued. “Payday loan borrowers end up paying an average of $520 in fees over five months in a year for an average loan of $375. Consumers resort to these high-cost loans because they’re in financial distress and often living paycheck to paycheck.”
To read the Pew issue brief, click here.
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