This is Jennifer. She took at 375 dollar payday loan to cover some bills, but it ended up ruining her budget and she’s not the only one. 12 million Americans use payday loans every year. It’s not hard to see why people like Jennifer are drawn to pay day loans. They look like two-week loans for a fixed fee of fifty-five dollars, but they’re not. Unlike other types of loans, payday loans have to be paid back all at once which is hard to do if you’re struggling to make ends meet. Instead, Jennifer pays a fee to buy more time. The reality is that instead of two weeks typical borrowers carry loans for half the year and spend more in fees in the amount they borrow. 8 in 10 borrowers want payday loan reform and policymakers can put it in place. The Consumer Financial Protection Bureau the new referee for payday lenders can fix this problem. A strong ability to repay rule from the CFPB should allow borrowers to make smaller payments over more time. Today, these loans take about a third of the average borrowers pay check and that’s just too much.

Research shows most borrowers can afford to spend no more than five percent of their paycheck on their loan payments. In Jennifer’s case she can still get her 375 dollar loan and by limiting payments to five percent of her income she would pay only sixty dollars and each paycheck instead of having to repay four hundred thirty dollars all at once. This will mean that loans have smaller more manageable payments that fit in a borrower’s budgets making for a more affordable and predictable path out of debt. It’s also important for states to rein in excessive interest rates. These changes, plus a few common-sense safeguards have already been tried with success. In Colorado, lawmakers cut prices by two-thirds and gave borrowers more time to pay their loans in smaller installments. Now the loans work as advertised. Borrowers missed fewer payments and saved more than forty million dollars a year while some payday stores in Colorado closed those that remain serve more customers.

Loans are still widely available and accessible, but work better. The point is, here’s a solution: a better small loan market is possible with lower prices and more time to repay in affordable installments. Policymakers at all levels need to act now to help borrowers like Jennifer get back on solid financial ground to learn more go to Pew trusts .org slash small loans.

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