‘It left me with nothing’: the debt trap of payday loans

theguardian.com:

M eka Armstrong of Detroit, Michigan, has struggled in a cycle of debt from payday loans for years. She first took out a payday loan in 2010 to cover the costs of medication she needs as she is disabled and lives with lupus.

“Worst decision I ever made,” said Armstrong. “The interest rate was 49% and I thought I would get my medications and pay the money back, but when I paid the money back, it left me with nothing. That’s how they get you. I, unfortunately, started the payday nightmare, and you can’t get out of the loop.”

Armstrong is just one of the 12 million Americans who take out payday loans annually in the states where payday lending is not prohibited, shelling out up to $9.8bn in fees to payday lenders every year. The industry targets Black borrowers such as Armstrong, and Latinos, who are more likely to have lower credit scores and be unbanked compared with their white counterparts.

A payday loan is a short-term, high-cost loan typically due on an individual’s next payday. But the payday industry thrives and depends on borrowers who take out numerous loans and face exorbitant fees and interest rates when they can’t keep up. Payday lenders collect 75% of their fees from borrowers who take out 10 or more loans a year, according to the Consumer Financial Protection Bureau.

The average payday loan customer has an annual income of about $30,000 and four in five payday loans are rolled over or renewed. The average payday borrower stays in debt for five months, paying $520 in fees to borrow $375 on average. The majority of borrowers, seven out of 10, take out payday loans to pay rent, utilities or other basic expenses.

It took Armstrong years to get out of the debt cycle, which she said was difficult because the payday