In a new report, the Insight Center for Community Economic Development finds that predatory payday loans in 33 states cost the American economy $774 million in 2011 resulting in the loss of more than 14,000 jobs. These costs, plus the an increase in Chapter 13 bankruptcies linked to payday usage, brought the total loss to nearly 1 billion dollars.
Payday lending generates economic activity, but the gains are less than the resulting losses, since the cost of payday loans—averaging over 400% APR annually—reduces household spending. In 2011, payday lenders received interest payments totaling $3.3 billion. However, each dollar of that interest subtracted $1.94 from the economy by reduced household spending while adding only $1.70 in spending by payday establishments. The net impact is that for each dollar of payday lending interest paid, an estimated 24 cents is lost to the U.S. economy.
Tim Lohrentz, author of the report and program manager at the Insight Center statesd “Our findings clearly show that payday lending is a drain on the US economy.”
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