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The federal government regulates payday loans because of: (a) significantly higher rates of bankruptcy amongst those who use loans (due to interest rates as high as 1000%); (b) unfair and illegal debt collection practices; and (c) loans with automatic rollovers which further increase debt owed to lenders.
The average payday loan in the state was for $273, came with an interest rate of 414% and cost $43 if paid back in two weeks, according to a survey by Missouri regulators released last year.
For example, when the CFPB issued a rule in 2017 to limit the number of payments the providers of payday loans, vehicle title loans, and high-cost installment loans could take from customer bank accounts, trade associations for payday lenders challenged the bureau's Federal Reserve funding as unconstitutional.
According to the Financial Health Network, a nonprofit that specializes in underbanked consumers, a majority of payday loan borrowers in the U.S. earn less than $30,000 per year.
Payday loans typically come with steep fees and interest rates well over 300 percent. They can lead to a dangerous debt cycle if you can’t repay and end up having to extend the loan term.
Personal loans tend to have a minimum repayment term of 12 months, so you’d technically pay more in interest over the life of a loan compared to a payday loan ($205.55 vs. $153.42).
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