Payday lenders often market their products as a simple solution to a short-term need for cash. The costs, however, are high. The average payday loan carries an annual interest rate of almost 400% with additional fees and penalties. Payday lenders often require access to the borrower’s bank account as a guarantee of repayment, which can result in overdraft charges if the borrower does not have sufficient funds for repayment.

Payday lending can trap borrowers into a cycle of debt and poverty, sometimes compelling borrowers to take out 10 or more consecutive loans. Borrowers often find it necessary to take another loan, along with additional fees, to pay off a previous loan. Eighty percent of short-term loans are re-borrowed in a month, and over fifty percent of all short-term loans are followed by at least 3 or more additional loans.

Payday loans disproportionately impact low-income populations and minority communities. Half of payday loan borrowers earn less than $25,000 per year. The majority have little to no savings or access to other forms of credit and sixty-nine percent of borrowers reported that payday loans covered a “recurring expense.” Predominantly African-American neighborhoods have three times as many payday lending stores as predominantly white neighborhoods. Borrowing rates are 2 to 3 times higher for African-Americans.