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Payday Loans: A High Cost for a Small Loan in Low-Income and Working Communities

By Elizabeth Renuart & Jean Ann Fox

The "fringe" consumer marketplace has developed a new mechanism to exploit the low-income population: payday loans, with average annual percentage rates of nearly 500 percent. The loans are marketed as a quick and easy way to get cash, but consumers are seldom able to repay and end up extending the loans multiple times, paying new fees each time. In some jurisdictions payday lenders are subject to usury laws, but nearly half the states have passed industry-backed legislation authorizing such loans. Nonetheless, consumers have several legal claims available to them.

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