Payday lenders make money by giving people loans they can’t pay back.
That fact has been apparent for years. A 2009 study from the Center for Responsible Lending found that people taking out new loans to repay old ones make up 76 percent of the payday market. Despite this information, the payday loan industry has consistently argued in public that its high-cost loans with interest rates ranging from 391 to 521 percent do not trap borrowers in a cycle of debt.
In private, it's a different story. According a newly released email, the payday lending industry knows that most people cannot pay back their loans. “In practice, consumers mostly either roll over or default; very few actually repay their loans in cash on the due date,” wrote Hilary Miller, a key figure in the industry’s fight against regulation, in an email to Arkansas Tech Professor Marc Fusaro.
Miller is chairman of the pro-industry group the Consumer Credit Research Foundation. The emails, obtained from Arkansas Tech University through an open records request by the watchdog group Campaign for Accountability and subsequently shared with The Huffington Post, show that Miller was actively involved in editing a study by Fusaro that investigated whether payday loans trap people in a cycle of debt. (The study said they did not, though a closer read of the data shows the loans actually do.) For his work, Fusaro was paid least $39,912, and Miller and the industry would later cite the research in letters to federal regulators.
Miller is also the president of the Payday Loan Bar Association, and has represented payday lending giant Dollar Financial.
The fact that most borrowers "roll over" -- a term for when a person takes out another loan in order to pay back their first one -- or default is not a new revelation. But it is remarkable to hear the payday lending industry speak about it as settled fact to an academic on their payroll, who subsequently arrived at the opposite conclusion.
“This confirms what we have been saying for a long time. Lenders market the loans as a short-term quick fix, but customers end up stuck in staggeringly high-cost debt for extended periods,” Ellen Harnick of the Center for Responsible Lending told HuffPost.
Miller told Huffpost in an email that "my comment is consistent with the findings of this paper itself and with those of other investigators, including the [Consumer Financial Protection Buruea] (in fact, about 55% of borrowers roll over only once or not at all)." The same CFPB report found that four out of five payday loans are rolled over or renewed and that only 15 percent of all payday loan borrowers repay on time.
Nick Bourke, a payday loan expert at Pew Charitable Trusts, told HuffPost that “anyone who actually knows this data and takes an objective look at it knows that the typical borrower does not repay right away when the loan is due. They do renew, roll over, borrow again for a consecutive period of time.” Snaring borrowers by turning a short-term lack of cash into a string of unaffordable loans “is the core of the payday loan business model,” Bourke said. “To any objective, fair-minded reviewer, that’s not in question.”
The payday loan industry can now be added to the list of people who saw the data and concluded that payday loans are a debt trap.