“Payday lenders destroy wealth in the middle class,” said Robert Lawless, co-director of the University of Illinois Program on Law, Behavior and Social Science.

Payday lending provides short-term access to credit, but often comes with high interest rates and expensive fees.

Essentially, a consumer can go to a storefront payday lender, bank or online lender, and leverage a signed check or a bank account (as long as the lender can access funds later) to get money up front. Oftentimes the lender will cash the check on the next payday; or if the loan is extended or “rolled over,” the consumer is charged new fees.

“People are paying interest rates of more than 300 percent, and paying over and over again for the same small amount of money they initially borrowed,” Lawless said. “So money that could have gone toward putting food on the table is instead paying off last month’s payday loan.”

A joint report recently released by the Woodstock Institute refers to payday lending as “among the most harmful forms of credit.” The report calls for “strong federal action to end payday lending.”

Titled "The Case for Banning Payday Lending: Snapshots from Four Key States," the report was commissioned as a collaboration between four consumer advocacy groups across the country: the Illinois-based Woodstock Institute; California-based Reinvestment Coalition; New York-based New Economy Project; and North Carolina-based Reinvestment Partners.

“Notwithstanding extensive documentation of the payday lending debt trap and the billions of dollars payday lenders have systematically stripped from low-income families and communities, especially those of color, the payday lending industry has cannily built and exerted its political power in state capitols throughout the U.S.,” the report reads. “As a result, many states permit usurious payday lending, with often dire consequences for millions of payday loan borrowers already struggling to make ends meet.”

Courtney Eccles, policy director for the Woodstock Institute and co-author of the report, called for the passage of federal legislation that would establish a 36 percent interest rate cap on all consumer credit transactions.

“Payday loans are just not a good way to help people manage their expenses and not a good product, we think there’s a much better way for folks to get safe short-term loans,” said Eccles. “It’s so very easy to get caught up in cycles of debt and get behind.”


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