Each year, more than 12 million borrowers take out payday loans in more than 20 states where payday loans are permitted and interest rates are not capped.
The interest rate on these loans can reach almost 400%.
No-Fee Extended Repayment Plans are an option for repaying these loans in more than a dozen of these states. This means that you can only repay the capital and fees that have already been charged to you. You would divide this balance over several months.
But according to recent research from the Consumer Financial Protection Bureau, these plans aren’t working as expected.
“It’s no surprise that these particular laws don’t work,” said Charla Rios, a researcher at the Center for Responsible Lending, “because we know the well-documented research and harms behind payday loans in general. It doesn’t So it’s no surprise that the product still keeps people in the debt trap as it was designed.”
The savings from an extended no-cost repayment plan can be substantial.
CFBP research shows that on a typical $300 loan, you would pay $45 in rollover fees every two weeks until the principal and fees are paid off. This means that after four months you would have paid $360 and still owed the original $300.
If you entered into a repayment plan after the first rollover, you would only pay $345 over an extended period.
The trade group that represents the payday loan company says it works to ensure that every customer has a positive experience with its products, that people are not only made aware of their options, like extended payment plans, but also benefit from it.
JThe Center for Responsible Lending is pushing for a 36% interest rate cap at all levels on payday loans.