All Bad Loans Have One Thing in Common: The Cycle of Debt

Monday, July 28th, 2014

Payday loans, car title loans, line of credit loans and Internet loans:  What do they have in common? The cycle of debt.

What is the cycle of debt?  Well, here is a picture of it from the training manual at Ace Cash Express, a large national payday, internet and car title lender:

This picture comes from a Consent Order from the Consumer Financial Protection Bureau where Ace agreed to pay $10 million in fines and restitution to borrowers they “bullied into a cycle of debt”. 

Unfortunately, it isn’t just Ace Cash Express that uses the debt trap. “…one could readily conclude that the business model of the payday industry depends on people becoming stuck in these loans for the long term, since almost half their business comes from people who are basically paying high-cost rent on the amount of their original loan,” said Richard Cordray, Director of the Consumer Financial Protection Bureau.

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