Payday loans often trap consumers in a cycle of debt, a new report by the federal government finds.
The Consumer Financial Protection Bureau found that the average consumer took out 11 loans during a 12-month period, paying a total of $574 in fees — not including loan principal. A quarter of borrowers paid $781 or more in fees.
"There is high sustained use — which we consider to be not only when a consumer rolls over the loan, but also when he pays it off and returns very quickly to take out another one," Richard Cordray, director of the bureau, said in a conference call with reporters Tuesday.
Although the loans are often marketed as temporary, to be repaid in a single pay cycle, the report found that the median number of days a borrower remained indebted was 155. The report also said that it considers so-called deposit advances — offered by certain major banks, including Wells Fargo & Co. in San Francisco — to be essentially the same as payday loans.