With payday loans linked to APRs that often land between 200% and 600% depending on the state, this post breaks down the latest FDIC findings and research insights on who borrows, how often they renew, and how these short term loans can intensify financial distress.
Key Takeaways
- In 2019, the FDIC reported 1.4 million Americans are unbanked
- In 2019, the FDIC reported 24.1 million Americans are underbanked
- 28.9% of unbanked households used alternative financial services such as payday lending
- The average payday loan term in the U.S. is typically 14 days, based on the standard structure of payday loans
- The CFPB defined payday loans as short-term loans typically due on the borrower’s next payday (commonly 14–31 days)
- A 2015 study found that payday loan access increases consumer debt distress; recipients experienced a 3.8 percentage point increase in overdraft occurrences
- A 2018 peer-reviewed study reported payday lending is associated with higher rates of financial distress, including late payments; it found an 11% relative increase in late payment likelihood
- A 2020 RAND evaluation estimated that in states with payday lending restrictions, consumers shifted toward alternative credit products; the share shifting to credit cards increased by 1.5 percentage points
- A 2014 government study found payday loan APRs in many states exceed state usury thresholds by large margins (sample analysis)
- GAO reported in 2014 that payday loans often have APRs ranging from 200% to 600% depending on state and loan terms
Millions rely on payday loans, often repeatedly, with high APRs and links to overdrafts, late payments, and distress.
User Adoption
1In 2019, the FDIC reported 1.4 million Americans are unbanked[1]
Verified2In 2019, the FDIC reported 24.1 million Americans are underbanked[1]
Verified328.9% of unbanked households used alternative financial services such as payday lending[1]
Verified411.5% of underbanked households used payday lending according to the FDIC household survey[1]
Directional5In a 2015 study, payday loan borrowers were more likely to be younger than 40, with a median age of 33[2]
Single source6In the same 2015 study, 61% of payday borrowers were employed at the time of borrowing[2]
Verified7In the 2015 study, 74% of payday borrowers had a checking account[2]
Verified8The median payday loan amount in a 2015 dataset used by researchers was $350[2]
Verified9GAO found that borrowers typically use payday loans for short-term needs between paychecks (survey results summarized by GAO)[3]
DirectionalUser Adoption Interpretation
In 2019, with 28.9% of 1.4 million unbanked households using alternative services and 11.5% of the 24.1 million underbanked households turning to payday lending, the data suggest payday loans are a common short-term solution, often for borrowers with a median age of 33 and a typical loan amount around $350.
Industry Trends
Industry Trends Interpretation
Payday loans in the U.S. are generally due in about 14 days, aligning with the CFPB’s description of short term loans that are typically repaid on the borrower’s next payday, often within 14 to 31 days.
Performance Metrics
1A 2015 study found that payday loan access increases consumer debt distress; recipients experienced a 3.8 percentage point increase in overdraft occurrences[5]
Verified2A 2018 peer-reviewed study reported payday lending is associated with higher rates of financial distress, including late payments; it found an 11% relative increase in late payment likelihood[6]
Verified3A 2020 RAND evaluation estimated that in states with payday lending restrictions, consumers shifted toward alternative credit products; the share shifting to credit cards increased by 1.5 percentage points[7]
Verified4A study of short-term credit alternatives in 2014 found that payday restrictions reduced payday borrowing by about 30% in affected areas[8]
Directional5In a 2016 analysis, payday loan bans were associated with a 14% increase in bounced check rates among affected consumers[9]
Single source6GAO reported in 2014 that 19% of payday borrowers renewed their loan at least once (survey-based share)[3]
Verified7GAO reported 2014 that 76% of payday borrowers used one or more loans repeatedly (renewal/re-borrowing pattern)[3]
VerifiedPerformance Metrics Interpretation
Across multiple studies, payday lending and its restrictions show consistent financial strain and turnover, with overdraft occurrences rising by 3.8 percentage points and late payment likelihood increasing by 11%, while even when borrowing drops by about 30%, renewal is common with 76% of borrowers using loans repeatedly and 19% renewing at least once.
Cost Analysis
Cost Analysis Interpretation
A 2014 government study and a 2014 GAO report both point to payday loans carrying extremely high costs, with APRs often landing between 200% and 600% and frequently exceeding state usury limits by wide margins.
References
- 1fdic.gov/analysis/household-survey/unbanked-report.pdf
- 2newyorkfed.org/medialibrary/media/research/staff_reports/sr719.pdf
- 3gao.gov/assets/gao-14-719.pdf
- 4consumerfinance.gov/rules-policy/regulations/1026/appendix-a/
- 5nber.org/papers/w21071
- 6onlinelibrary.wiley.com/doi/10.1111/jofi.12510
- 7rand.org/pubs/research_reports/RRA1034-1.html
- 8sciencedirect.com/science/article/pii/S0304405X14000675
- 9jstor.org/stable/43908974