Target: Members of Congress
Goal: Institute a federal ban on payday lending to help end harmful loans aimed at low-income borrowers
Payday loans are made to borrowers who have a bank account and a regularly documented income source, such as a paycheck or a Social Security benefit. They range in sizes of $100 to $1,000, have terms of about two weeks on average, and typically charge 400% annual interest (APR) or more. This means borrowers generally pay $15 to $30 in order to borrow $100. These types of loans are extremely expensive compared to other kinds of cash loans, are strategically targeted towards low-income borrowers who are willing to pay these high costs due to desperate circumstances, and have the effect of putting borrowers into a “debt trap” whereby they must take out additional loans to pay back the initial payday loan.
While the industry maintains that payday loans are an alternative source of funds used rarely by people who face infrequent or one-time emergencies, research by the Pew Charitable Trusts found that the average payday borrower receives 8 loans per year. The Center for Responsible Lending also found that 76% of payday loans were made to borrowers within two weeks of the repayment of an earlier loan. This demonstrates not only that these loans are not one-time events, but also that the debt trap borrowers encounter once accepting a payday loan is a typical occurrence.
Furthermore, payday loans have been prohibited in seventeen states plus the District of Columbia as well as for active duty military personal and members of their families. Because these predatory loans seek to continuously extract revenue from individuals in desperate financial situations, it is not enough to regulate them or attempt to provide adequate information about them — they must be banned outright as a form of small-dollar lending.
Low-income communities can not stand these deceitful institutions in their neighborhoods any longer. Demand an immediate federal ban on payday lending to help end harmful loans towards low-income Americans.
Dear Members of Congress,
Payday lending has run amok in low-income communities. By charging triple digit annual interest rates and neglecting to ensure that borrowers will be able to repay loans out of their future income, payday lending institutions have trapped vulnerable borrowers in an unrelenting cycle of debt.
This form of small-dollar lending has failed to provide a beneficial source of funds for low-income Americans. What’s more, there are other forms of high-quality small-dollar lending that could adequately replace payday lending as affordable and welfare enhancing alternatives within the market.
The US government has declared payday loans unfit for active duty military personal and their families. Why not also declare them unfit for all Americans, especially those who struggle in low-income communities? What’s more, seventeen states already prohibit payday lending. I urge you to take action against this predatory lending practice. Institute an immediate ban on payday lending.
[Your Name Here]
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