The Two-Week Loan is a Lie

-      Payday lenders distort the facts about their products, claiming they are short-term loans for emergency use. 

Recently, the payday industry trade association announced a $10 million public relations campaign.  The new ads tell borrowers that payday loans are one-time loans for unplanned, short-term expenses.  The trade association website states: "Did you know that payday loans are two-week loans -- not annual loans!  The typical fee charged by payday lenders is $15 per $100 borrowed, or a simple 15 percent for a two-week duration." www.cfsa.net

-      In reality 99% of payday loans are converted into long-term debt. 

Only one percent of payday loans go to borrowers with only one transaction per year.  On average,  90% of payday loans go to borrowers with five or more per year. 62% of loans go to borrowers with 12 or more per year. (Financial Quicksand: Payday Lending Sinks Borrowers in Debt with $4.2 Billion in Predatory Fees Every Year, Center for Responsible Lending, Nov. 30, 2006)

-      Payday lenders charge interest rates upwards of 400%.

Payday lenders tell their customers their fees are $15 per hundred borrowed, or thereabouts.  Because these loans average two weeks, the annual interest is near 400%.  And because these loans are repeatedly renewed, rolled over, or closed out and immediately reopened, payday loans are long-term debt - annual interest rates are an accurate measure of their cost and, even for the rare short-term borrower, an accurate means of comparing the cost of credit.

-      States that cap annual interest in the 36-percent range eliminate payday loan flipping.

States like North Carolina (36% cap) and Pennsylvania (26% cap) cap annual interest rates for consumer loans in the double digits. Since the practice of payday loan companies partnering with out-of-state banks to operate in states where payday lending is illegal has been stamped out, these states have rid themselves of predatory payday lending.