Report: Payday loans can create long-term indebtedness

More rigid restrictions on the loans have been a target of some lawmakers who argue that lenders should not be allowed to exorbitant charge interest rates and fees.  

Senate Majority Whip Dick Durbin (D-Ill.) along with several other lawmakers, recently introduced a bill that would create an interest rate and fee cap of 36 percent for all consumer credit transactions, in an effort to end rates that can skyrocket up to 300 percent.  

"For some, payday lenders offer a quick way to make ends meet, but often with devastating consequences," Durbin said. 

Many states have already put some caps in place, the senators said, and the same ceiling is already in place for military personnel and their families.

Durbin has been pushing the legislation since 2009 and, along the way, has asked Cordray to provide better protections for consumers. 

The loans offer consumers ways to bridge funding for household expenses in between paychecks and are usually easy to obtain for borrowers who might not qualify other loans. 

The loans are usually consist of smaller amount that must be repaid quickly. But, on many occasions, consumers wind up rolling over the loans to take out additional amounts. 

The CFPB study looked at a 12-month period with more than 15 million storefront payday loans and data from multiple depository institutions that offer deposit advance products.

The study also confirmed these type of consumer loans can have very high costs — payday loans generally range from $10-$20 for every $100 borrowed. 

For example, a typical loan of $350, with the median $15 fee per $100 would mean that the borrower must come up with more than $400 in just two weeks. 

A loan outstanding for two weeks with a $15 fee for every $100 has an interest rate of 391 percent.

The CFPB began its supervision of payday lenders in January 2012. The CFPB also has authority to examine the deposit advance loans at the banks and credit unions it supervises, which are insured depository institutions and credit unions that have more than $10 billion in assets. 

While the study focused on storefront payday lenders, the CFPB will continue to analyze the growing online presence of such businesses. 

The agency also is looking at bank and credit union deposit account overdraft programs that provide short-term, small-dollar, immediate access credit services.

The CFPB will publish initial results from this overdraft study later this spring.