How to Premediate a Rolling Payday Loan

Executive Summary

• The point of payday loans is for the borrower to never pay off the loan, but to roll the loan.

Introduction

Rolling over a loan is when the loan cannot be repaid and is “rolled” in a larger loan and the payment deferred. Rolling over loans can be a legitimate way of dealing with a setback and an inability to pay, however, some rolling of loans is premeditated by the private banker. That means that the loan is structured to have the principle paid back. This is explained in the following quotation.

“A payday loan is a small-dollar, short-term loan that must be repaid in full on the borrower’s next payday. The single large repayment in this loan, rather than an installment structure, ensures that the borrower will not be able to repay the loan and still pay their other bills. In order to meet their obligations after repayment, borrowers require the extension of a new payday loan, or rolling over the initial loan with additional high fees, 80 percent of the time (CFPB 2014). For example, one payday lender said, “The cycle of debt is what makes these stores so profitable.” He described the typical successful store as having 400 to 500 customers, each trapped in the debt cycle with loans that they could not pay (Rivlin 2016). Research has estimated that approximately 75 percent of payday loan volume is due to this churning (Parrish and King 2011; Parrish and King 2009). ” – The Public Banking Solution