CFPB Finds Four Out Of Five Payday Loans Are Rolled Over Or Renewed
Research Shows the Majority of Payday Loans Are Made to Borrowers Caught in a Revolving Door of Debt
WASHINGTON, D.C. — Today, the Consumer Financial Protection Bureau (CFPB) issued a report on payday lending finding that four out of five payday loans are rolled over or renewed within 14 days. The study also shows that the majority of all payday loans are made to borrowers who renew their loans so many times that they end up paying more in fees than the amount of money they originally borrowed.
“We are concerned that too many borrowers slide into the debt traps that payday loans can become,” said CFPB Director Richard Cordray. “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 are typically described as a way to bridge a cash flow shortage between paychecks or other income. Also known as “cash advances” or “check loans,” they are usually expensive, small-dollar loans, of generally $500 or less. They can offer quick and easy accessibility, especially for consumers who may not qualify for other credit.
Today’s report is based on data from a 12-month period with more than 12 million storefront payday loans. It is a continuation of the work in last year’s CFPB report on Payday Loans and Deposit Advance Products, one of the most comprehensive studies ever undertaken on the market. That report raised questions about the loose lending standards, high costs, and risky loan structures that may contribute to the sustained use of these products.
Today’s report provides a deeper analysis of the data, focusing on repeated borrowing by consumers after they take out an initial payday loan. A primary driver of the cost of payday loans is that consumers may roll over the loans or engage in re-borrowing within a short window of time after repaying their first loan. Today’s study looks at not only the initial loans but also loans taken out within 14 days of paying off the old loans; it considers these subsequent loans to be renewals and part of the same “loan sequence.” Today’s study is the most in-depth analysis of this pattern to date.
Key Findings: Many Payday Loans Become Revolving Doors of Debt
By focusing on payday loan renewals, the study found that a large share of consumers end up in cycles of repeated borrowing and incur significant costs over time. Specifically, the study found:
Four out of five payday loans are rolled over or renewed: More than 80 percent of payday loans are rolled over or renewed within two weeks. The study found that when looking at 14-day windows in the states that have cooling-off periods that reduce the level of same-day renewals, the renewal rates are nearly identical to states without these limitations.
Three out of five payday loans are made to borrowers whose fee expenses exceed amount borrowed: Over 60 percent of loans are made to borrowers in the course of loan sequences lasting seven or more loans in a row. Roughly half of all loans are made to borrowers in the course of loan sequences lasting ten or more loans in a row.
One out of five new payday loans end up costing the borrower more than the amount borrowed: For 48 percent of all initial payday loans – those that are not taken out within 14 days of a prior loan – borrowers are able to repay the loan with no more than one renewal. But for 22 percent of new loans, borrowers end up renewing their loans six times or more. With a typical payday fee of 15 percent, consumers who take out an initial loan and six renewals will have paid more in fees than the original loan amount.
Four out of five payday borrowers either default or renew a payday loan over the course of a year: Only 15 percent of borrowers repay all of their payday debts when due without re-borrowing within 14 days; 20 percent default on a loan at some point; and 64 percent renew at least one loan one or more times. Defaulting on a payday loan may cause the consumer to incur bank fees. Renewing loans repeatedly can put consumers on a slippery slope toward a debt trap where they cannot get ahead of the money they owe.
Four out of five payday borrowers who renew end up borrowing the same amount or more: Specifically, more than 80 percent of borrowers who rolled over loans owed as much or more on the last loan in a loan sequence than the amount they borrowed initially. These consumers are having trouble getting ahead of the debt. The study also found that as the number of rollovers increases, so too does the percentage of borrowers who increase their borrowing.
One out of five payday borrowers on monthly benefits trapped in debt:The study also looked at payday borrowers who are paid on a monthly basis and found one out of five remained in debt the entire year of the CFPB study. Payday borrowers who fall into this category include elderly Americans or disability recipients receiving Supplemental Security Income and Social Security Disability.
Today’s report will help educate regulators and the public about how the payday lending market works and about the behavior of borrowers in the market. The CFPB has authority to oversee the payday loan market. It began its supervision of payday lenders in January 2012. In November 2013, the CFPB began accepting complaints from borrowers encountering problems with payday loans.
Question: Is a husband liable for his wife’s medical bills after she passes away? Her bills were sent to a collections agency which is dunning me for the bills and collection charges.
Answer: Illinois has a Family Expense Act under which one spouse is generally liable for necessary expenses of the family, which includes non-elective medical expenses, as long as the spouses are living together. The liability probably does not extend to cases where credit is extended to one spouse, as may be the case with elective procedures.
The statutory liability does not extend to collection charges, fees, etc., beyond 5% per annum simple interest (payable by statute) absent a signed agreement.
Attempts to collect collection charges and fees from the spouse not receiving the treatment probably violate the Fair Debt Collection Practices Act. This firm has filed cases challenging such attempts, and you should contact us if you have been subjected to such attempts.
Question: Am I legally responsible for my adult child’s medical bills if child is covered under my health insurance? I have a 19 year old that is covered on my health insurance through my employer. Am I legally responsible for the portion of the medical bills that insurance doesn’t cover?
Answer: Not without an agreement signed by you. An adult child can remain on the parent’s medical insurance until they are 26. However, that does not impose liability for medical bills that are not covered by insurance. Generally, you are not liable to pay the debt of another unless you have signed a writing to that effect. The fact that you have made a gift to your adult child (medical insurance premiums) does not obligate you to a third party, or to make further gifts.
The U.S. Court of Appeals for the Seventh Circuit issued a decision on two lawsuits involving debt collectors offering “settlements” on debts that were beyond the statute of limitations. We represented the plaintiff in both cases. McMahon v. LVNV Funding and Delgado v. Capital Management Services, Nos. 12-3504 and 13-2030 (7th Cir., March 11, 2014). The Federal Trade Commission and Consumer Financial Protection Bureau filed a brief supporting the consumers.
“The underlying question presented by these two appeals…relates to the circumstances under which a dunning letter for a time-barred debt could mislead an unsophisticated consumer to believe that the debt is enforceable in court, and thereby violate the Fair Debt Collection Practices Act.”
The court found the reference in a collection letter of a possible “settlement” of the debt to be deceptive, because it implied that allegedly enforceable obligation to pay the debt existed.
“In summary, we conclude that an unsophisticated consumer could be misled by a dunning letter for a time-barred debt, especially a letter that uses the term ‘settle’ or ‘settlement.’”
What Job Applicants and Employees Should Know
Some employers look into your background before deciding whether to hire you, or before deciding whether you can keep your job. When they do, you have legal rights. The Federal Trade Commission (FTC) enforces a federal law that regulates background reports for employment, and the Equal Employment Opportunity Commission (EEOC) enforces federal laws against employment discrimination. This publication explains these laws, and how to contact the FTC and EEOC if you think an employer has broken the law. There might be other rules in your city or state, so it’s a good idea to check with someone who knows the laws of your area.
Questions About Your Background
An employer may ask you for all sorts of background information, especially during the hiring process. For example, some employers may ask about your employment history, your education, your criminal record, your financial history, your medical history, or your use of online social media.
Unless the employer is asking for medical or genetic information, it’s not illegal to ask you questions about your background, or to require a background check. (Employers aren’t allowed to ask for medical information until they offer you a job, and they aren’t allowed to ask for your genetic information – including family medical history – except in very limited circumstances.)
However, when an employer asks about your background, it must treat you the same as anyone else, regardless of your race, national origin, color, sex, religion, disability, genetic information (including family medical history), or older age (40 or older). For example, an employer is not allowed to ask for extra background information because you are of a certain race or ethnicity.
Some employers also will try to find out about your background by hiring someone to do a “background report” on you. Two of the most common are credit reports and criminal background reports.
Special rules apply when an employer gets a background report about you from a company in the business of compiling background information. First, the employer must ask for your written permission before getting the report. You don’t have to give your permission, but if you’re applying for a job and you don’t give your permission, the employer may reject your application.
Second, if the employer thinks it might not hire or retain you because of something in the report, it must give you a copy of the report and a “notice of rights” that tells you how to contact the company that made the report. This is because background reports sometimes say things about people that aren’t accurate, and could even cost them jobs. If you see a mistake in your background report, ask the background reporting company to fix it, and to send a copy of the corrected report to the employer. You also should tell the employer about the mistake.
You can get your credit report and fix any mistakes before an employer sees it. To get your free credit report, visit www.annualcreditreport.com or call 1-877-322-8228. You don’t have to buy anything, or pay to fix mistakes.
If the Employer Finds Something Negative in Your Background
If there is something negative in your background, be prepared to explain it and why it shouldn’t affect your ability to do the job.
Also, if the problem was caused by a medical condition, you can ask for a chance to show that you still can do the job.
Sometimes it’s legal for an employer not to hire you or to fire you because of information in your background, and sometimes it is illegal. An example of when it is illegal is when the employer has different background requirements depending on your race, national origin, color, sex, religion, disability, genetic information (including family medical history), or older age (40 or older). For example, it would be illegal to reject applicants of one ethnicity with criminal records for a job, but not reject other applicants with the same criminal records. This is true whether or not the information was in a background report.
Even if the employer treated you the same as everyone else, using background information still can be illegal discrimination. For example, employers shouldn’t use a policy or practice that excludes people with certain criminal records if the policy or practice significantly disadvantages individuals of a particular race, national origin, or another protected characteristic, and doesn’t accurately predict who will be a responsible, reliable, or safe employee. In legal terms, the policy or practice has a “disparate impact” and is not “job related and consistent with business necessity.” (It doesn’t matter whether or not the information was in a background report.)
Question: Can the owner of a corporation be sued if the corporation is administratively dissolved and owner continues doing business?
Answer: Yes. If you charter a corporation with the Secretary of State of Illinois and continue business in its name after its corporate status lapses for nonpayment of franchise taxes, anyone conducting the business incurs personal liability. Reinstatement of the corporation does not erase the personal liability for the period before reinstatement.
Please contact us if you are sued by Pushpin Holdings in a Chicago court.
Pushpin Holdings regularly files hundreds of cases in the Circuit Court of Cook County, Illinois against people located throughout the United States seeking to collect on personal guarantees of old credit card equipment leases.
In many of these cases Pushpin has obtained default judgments because the defendants did not appear and resist the claim. Under local court procedures, a defendant has to appear (either in person or by attorney) on at least 2 occasions in order to avoid entry of a default judgment. Do not allow a default judgment to be entered against you, which can then be enforced against your wages, bank accounts, and other assets. If you work for a company that does business in Illinois, or have an account at a bank with an office in Illinois, Pushpin can try to enforce the judgment here.
There are several defenses to these claims and we have successfully represented the defendants in many of these cases.
Question: What should you do if being sued for deficiency on a repossessed car after 4 years? I had my car voluntarily repossessed 4 years ago when I could no longer make the payments. There has been no contact since until yesterday when I received a demand for the full amount of the car. There are no assets to take as I am living check to check with kids. What are my options considering it’s been 4 years?
Answer: The statute of limitations in Illinois on a claim for failure to pay on a retail installment contract (such as one for the purchase of a car) is four years from the default or last payment, whichever is later. The date of default would be prior to the date of repossession.
You should dispute the debt. There is a form letter on our web site that can be used for that purpose. If you have been sued she needs to comply with the instructions on the summons and avoid default.
You should not pay or agree to pay or admit anything. If the statute of limitations has run, you are under no legal obligation to pay.
A demand to pay on a time barred debt may violate the Fair Debt Collection Practices Act. Filing suit on a time barred debt is a violation.
A demand for the full amount under the contract (not just the deficiency?) may violate both the Fair Debt Collection Practices Act and the Uniform Commercial Code. They are supposed to give a credit for the resale of the car and eliminate unearned finance charges. The resale has to be commercially reasonable and after proper notice (send us the notices to review).
Both the FDCPA and UCC provide for statutory damages in consumer cases. The FDCPA is up to $1,000; the UCC is an amount equal to the finance charge plus 10% of the price of the vehicle/ amount financed. The FDCPA provides for the award of fees against the debt collector.
Our consumer protection, collection abuse and class action law firm, attorneys and lawyers represent clients throughout Illinois and Wisconsin including, but not limited to Chicago, Elgin, Aurora, Schaumburg, Naperville, Bolingbrook, Joliet, Plainfield, Barrington Hills, Waukegan, Winnetka, Evanston, DeKalb, Geneva, Batavia, Wheaton, Woodridge, Rockford, Harvey, Markham, Westchester, Cicero, Berwyn, Belvidere, West Chicago, Country Club Hills, Crestwood, Rolling Meadows, Romeoville, Chicago Heights, Tinley Park, Orland Park, Oak Forest, Homewood, Lansing, Calumet City, Hazel Crest, Dolton, Riverdale, Midlothian, Frankfurt, Oak Lawn, Oak Park, Cook County, DuPage County, Kane County, Will County, McHenry County, Lake County and more.