The Consumer Financial Protection Bureau's payday lending report issued Tuesday finds that more than 80% of all payday loans are either rolled over or "renewed" within two weeks — a point that the industry's critics are expected to cite.

But the report also finds that about 55% of new payday loans are either never renewed or only renewed once — a finding that payday industry representatives seem likely to highlight.

The report defines renewals as payday loans taken out within 14 days of repayment of a previous loan; rollovers are extensions of unpaid loans.

The CFPB also says it is in the late stages of formulating new regulations for the payday lending business. That announcement, embargoed for release until midnight Tuesday, came as the agency published the new research that it's expected to use in writing the rules.

Specifically, the research suggests that many consumers who use payday loans do not get stuck in a long-term cycle of debt, but that the industry derives most of its revenue from consumers who borrow again and again.

“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 commonly 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.

The CFPB'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. 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.

The report suggests that certain state-level restrictions on renewals of payday loans have been ineffective in preventing borrowers from getting caught in a debt cycle.

California, Iowa, Kentucky, Michigan, Mississippi, Nebraska, New Mexico, South Carolina and Tennessee all ban rollovers of payday loans, but they allow borrowers to take out new loans on the same day that the earlier loan is repaid. Alabama, Florida, Virginia and Wisconsin all have a waiting period of at least one day before a new loan can be made.

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% 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% 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% 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% of new loans, borrowers end up renewing their loans six times or more. With a typical payday fee of 15%, 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% of borrowers repay all of their payday debts when due without re-borrowing within 14 days; 20% default on a loan at some point; and 64% 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% 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.

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.

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