Since 2005, Floridians have paid $2.5 billion in fees to payday lenders, despite state regulations laws, according to a newreport from the Center for Responsible Lending.
A payday loan is a high-interest, low-dollar loan that is due on your next payday, says Delvin Davis, a senior research analyst at the non-partisan research center and co-author of the report. For example, lets say you need $500. You go to the payday loan store, you write the lender a post-dated check for $500 plus, in this case, a $50 fee. Two weeks later, the lender cashes your check, and thats the end of it, right?
What actually ends up happening, according to Davis, is that after two weeks, most people dont have the money to pay $550. Instead, they go back to the lender and pay the rollover fee of $50 for two more weeks to pay off the full loan.
Basically youre kicking the snowball down the hill, he says. Two weeks later, the same situation happens again and every two weeks youre paying the rollover fee, but you never pay anything down on the original $500 loan. Its a debt treadmill. Its easy to get into, but hard to get out.
The billions Floridians have paid to lenders in the past decade are just in fees, like the $50 example Davis discussed. Last year alone, lenders collected $311 million in fees.
Florida passed a payday loan reform law in 2001 that limits people to borrowing one loan at a time, a 24-hour waiting period between loans, extended payment plans, financial counseling and the authority to track payday lending activity. But the report says the Florida law has loopholes payday lenders are exploiting through a regulatory framework that fails to safeguard borrowers from sliding deeperand deeper into a cycle of debt, and permits loans with (annual percentage rates) in excess of 300%.
An Orlando Sentinel article from 2007 reported some payday lender companies were skirting reforms, charging annual percentage rates on loans that exceeded 400 percent to 700 percent. Davis says payday lenders are operating under a different section of Florida law that allows them to charge astronomical annual percentage rates averaging 278 percent in the state. Davis and his co-author also found 83 percent of payday loans are going to Floridians stuck in seven or more loans.
Whenresearchers mapped 1,100 payday loan stores in Florida, they found that stores were highly concentrated in African-American and Latino communities.
Across the country, African-Americans and Latinos continue to earn less on the job and possess only afraction the net worth of their white counterparts, the Center for Responsible Lending report says. …Considering all of these facts, individuals and communities that strugglemost to accumulate wealth and are less capable of breaking the cycle of debt are most geographicallytargeted by payday lenders.
The report also found that the number of seniors ages 65 and older borrowing payday loans doubled from 3.4 percent of all borrowers in 2005 to 8.6 percent in 2015.