Photograph by Vik Jolly — AP
By Lucinda Shen
April 20, 2016

A few years ago, HBO’s John Oliver brought national attention to the problem of payday loans, noting how the practice often dragged consumers into a deep cycle of debt.

The loans are set up so that short-term borrowers pay their debts on payday, but with the exorbitantly high APR charged by some lenders, payday loans can lead debtors to borrow again in order to make a deadline.

But there’s yet another factor in that cycle, according to a Consumer Financial Protection Bureau survey released Wednesday.

Borrowers who don’t have enough in their checking account to cover their payments are often subject to an even heavier price tag as banks charge overdraft or non-sufficient fund fees.

In an 18-month period, the government agency analyzed nearly 20,000 accounts that made payments to Internet-based payday lenders and found that debtors paid on average of $97 in overdraft and non-sufficient fund fees. That’s almost three times the amount of $34 paid by the average American.

According to the study, roughly half of payments from those borrowers fail to go through—leading to $185 in fees, on average, over the 18-month period.

And though 88% of payment requests succeed with no overdraft fees, if the debtor’s payment fails to go through once, subsequent payments are also unlikely to follow, the bureau stated.

 

That’s because if one payment fails, the payday lender will submit multiple requests as follow-ups on the same day. In follow-up requests, lenders commonly split up the amount owed into smaller installations in the hope of getting at least part of their money back.

“Borrowers should not have to bear the unexpected burdens of being hit repeatedly with steep, hidden penalty fees that are tacked on to the costs of their existing loans,” Richard Cordray, director of the bureau told the New York Times.

The CFPB’s study is one of a series, as the bureau attempts to increase awareness surrounding payday loans and encourage regulation.

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