New CRL Study Dilutes Arguments for California's Payday Lending Bill

OAKLAND, Calif., July 9 /PRNewswire-USNewswire/ -- A full three quarters of
the payday industry's loan volume is generated by borrowers who, after
repaying one payday loan, must take out another before their next paycheck,
new Center for Responsible Lending research shows.

The report comes on the eve of the California Senate Judiciary Committee
meeting where AB 377, a highly-flawed payday lending bill, will be considered.
That body will review the bill next Tues., July 14.

"It's now crystal clear that demand for payday loans is greatly exaggerated,"
said Ginna Green, spokesperson for the California office of the Center for
Responsible Lending. "The vast bulk of the "so-called" demand is from
borrowers stuck in the payday debt trap."

Payday churning?repeat borrowing of what payday lenders market as a short-term
loan of a few hundred dollars?has been well documented. But the Center for
Responsible lending's new report goes further by verifying for the first time
how quickly most payday customers must turn around and re-borrow after
repaying a previous payday loan. Among the over 80 percent of payday borrowers
who conduct multiple transactions:

-- Half of new loans are opened at the borrower's first opportunity
(immediately or after a 24-hour or more waiting period where
required).
-- 87% of new loans are opened within two weeks, or generally before
their
next payday.
-- Only 6 percent of subsequent payday loans are taken out longer than a
month after the previous loan was paid off.

This rapid, widespread re-borrowing indicates that most payday borrowers are
not able to both repay one of these loans and clear a monthly billing cycle
before having to borrow again. In essence, the bulk of payday loan demand
comes from borrowers who are taking out a payday loan to repay a payday loan.

AB 377 would make payday loan re-borrowing even more problematic by raising
the loan limit from $300 to $500. Borrowers unable to pay back $300 in one
full payment in two weeks will find it even more difficult to repay $500.

"Our report, Phantom Demand, shows that it's very common for payday borrowers
to take out their next payday loan on the very first day on which state
regulations allow," said Leslie Parrish, senior researcher at the Center for
Responsible Lending and co-author of the report. "Rather than serving as a
bridge to get a borrower past a financial emergency to their next payday, the
data clearly shows payday loans work more like a shovel into deeper debt."

Payday lenders generate loan volume by making a payday loan due in full on
payday and charging a sizeable fee--now nearly $60 for an average $350 loan.
This virtually guarantees that low-income customers will experience a
shortfall before their next paycheck and need to come right back in the store
to take a new loan. This churning accounts for 76 percent of total loan
volume, and for $20 billion of the industry's $27 billion in annual loan
originations.

Payday lenders in over 30 states including California have convinced lawmakers
to allow them to charge triple-digit interest rates on their loans, often as
an exception to much more reasonable rates on other consumer loans, because
they claim there is a heavy demand for their short-term product, and that
low-income families have few other options.

AB 377 is flawed legislation that does little to protect vulnerable families,
and this report flatly contradicts industry and legislator arguments that
payday loans are in high demand. Rather than raising the loan limit on payday
loans as AB 377 would, the legislature should consider payday lending
provisions that will actually protect consumers from the payday lending debt
trap, such as:

-- Adopting the FDIC guidelines limiting borrowers to no more than 6
loans
per year;

-- Maintaining the $300 loan limit.

According to Phantom Demand, the 59 million churned loans per year by the
national payday lending industry cost borrowers $3.5 billion in fees.

"This is money that could be used for other things - savings for an emergency,
paying off other debt," said Parrish. "So it's really a huge loss for these
families who are taking out a payday loan."

Leslie Parrish discusses the findings of Phantom Demand in a 9-minute taped
webinar available at www.responsiblelending.org. To set up an interview with
Ms. Parrish or to discuss California's payday legislation, please call Ginna
Green in the California office at 510.379.5513 or 510.219.9695.

About the Center for Responsible Lending
The Center for Responsible Lending is a nonprofit, nonpartisan research and
policy organization dedicated to protecting homeownership and family wealth by
working to eliminate abusive financial practices. CRL is affiliated with
Self-Help, one of the nation's largest community development financial
institutions.

SOURCE Center for Responsible Lending

Ginna Green of the Center for Responsible Lending, +1-510-379-5513