The nonprofit Center for Responsible Lending looked into the problem and found that, the annual percentage rates for payday loans typically ranged between 391% and 443%. No wonder the Consumer Federation of America has called this practice “the modern day equivalent of ‘loan-sharking.’”
When a person who’s living from paycheck to paycheck takes out a loan as costly as the average payday loan, it can be hard for them to avoid getting trapped into an endless cycle of borrowing. And that is exactly what payday lenders count on.
Business is good and getting better for payday lenders. The Center for Responsible Lending’s study reported that payday loans were costing borrowers $3.4 billion a year. That cost is growing as the market expands. It’s reached the point where, as NAACP board chairman Julian Bond observed, payday lenders “open their doors in low-income neighborhoods at a rate equal to Starbucks opening in affluent ones.”
The State of Maryland, like 13 other states, has outlawed payday loans altogether. Payday lenders are still allowed to do business in Delaware, however.