The lender holds the check or electronic debit authorization for a week or two (usually until the borrower's next payday). At that time the loan is due in full, but most borrowers cannot afford to pay the loan back, and still make it to the next payday.
But if the check is not covered, the borrower accumulates bounced check fees from the bank and the lender, who can pass the check through the borrower's account repeatedly. Payday lenders have used aggressive collection practices, sometimes threatening criminal charges, for writing a bad check even when state law prohibits making such a threat. Under these pressures, most payday borrowers get caught in the debt trap.
To avoid default, they pay another $60 to keep the same loan outstanding, or they pay the full $350 back, but immediately take out another payday loan, with another $60 fee.
In either case, the borrower is paying $60 every two weeks to float a $290 advance — while never paying down the original amount of the principal. The borrower is stuck in a debt trap — paying new fees every two weeks just to keep an existing loan (or multiple loans) outstanding.
(Source: Center for Responsible Lending)
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