BY SEAN PYLES
Half of all online payday loan borrowers are hit with bank penalties averaging $185 when the automated payments on their loans fail or cause an overdraft, according to a report released Wednesday by the Consumer Financial Protection Bureau.
More than one-third of borrowers with failed payments eventually lose their bank accounts, the CFPB says.
Online payday or installment loans are short-term, high-interest loans granted to borrowers without a traditional credit check. Some must be repaid in a lump sum after a week or two, and others may be repaid in installments over several months or years.
The CFPB examined nearly 20,000 bank accounts making payments to 332 of these lenders over an 18-month period from 2011 to 2012. The lenders typically use an electronic funds transfer system to deposit the loan directly into the consumer’s checking account, then use the same mechanism to withdraw the money owed come payday.
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