$6 b in overdraft fees1; $2.4 b in payday loan fees2; $.7 b in car title loan fees.3 These enormous sums are extracted every year from families as the result of onerous triple-digit interest rates.
Purveyors of high-cost loans like payday loans and auto title loans claim that they are providing funds for households to cover unexpected and occasional emergencies like medical bills or car repairs. However, research shows that high-cost lenders entangle their customers in a cycle of debt and reborrowing and that reborrowing, as opposed to making one-time emergency loans to tide households over, is in fact these lenders’ business model. In 2023, roughly 77% of payday loan consumers in California and Florida took out two or more payday loans during the year. Nationally, the median number of payday loans among those who took out two or more payday loans during the year (accounting for 85% of payday loan users) was six in 2012.4
High-cost loan companies depend on repeat borrowers for their bottom line. California payday lenders charged $236.9 million in fees in 2023. About 74% of these fees, $174.3 m, came from customers who made seven or more transactions during the year.5
Repeat payday loan use adds, again and again, the cost of payday loan fees to the monthly expenses of the low-income families who most use these loans. Widely accepted guidance about the rent payments a household can reasonably handle indicates that a household is “rent burdened” and will struggle to pay for non-housing expenses, like food, child care, and transportation, if it’s spending 30% or more on rent.6 It follows, then, that a household that is spending close to 30% of its income on rent and that adds high-cost loans fees to its expenses has even less money left over for other essentials.
As of 2022, 22.4 m renter households, half of all renter households, were rent burdened.7 The reality is even more stark, as data limitations mean that the income used in calculating rent burden is gross income, before deduction of taxes, meaning that the true proportion that are burdened by rent is higher than the reported 50%.8
The high-cost loan business model exploits low-income renter families
Of course, high-cost loan companies have only to look at their own revenue sources to know that they are exposing households to repeated high-cost borrowing. How do they do this? One way is to go after these rent-burdened households.9
Not surprisingly, “rent burdened” status is concentrated among low-income renter households. For example, while renter households with incomes not exceeding $27,500 constitute about 31% of all renter households, they constitute about 46% of rent burdened households.10 Moreover, low-income renter households are very likely to be rent-burdened. Over 8 in 10 renter households with incomes not exceeding $27,500 are rent burdened, while over 3 in 4 with incomes not exceeding $55,000 are.11 For the lender, this means that a high-cost loan to a renter household with an income less than or equal to $27,500 has an 85% chance of being a loan to a household that very likely does not have enough residual income, after paying rent, to cover its non-housing expenses, much less its non-housing expenses plus high-cost loan fees. The household will be caught and will have to borrow again. A high-cost loan to a renter household with an income less than or equal to $55,000 has a 77% chance of being a loan to a household that very likely does not have enough residual income, after paying rent, to cover its non-housing expenses, even before it is faced with high-cost loan fees. Of course, many additional low-income renter households, even if not officially rent burdened, would also come up short.
Our best estimates suggest that although most high-cost loans do not go to low-income renter households, these households being a modest proportion of all households, high-cost loan companies do operate disproportionately among low-income renter households. We estimate that renter households with incomes not exceeding $27,500 constitute between 15% and 21% of the users of “alternative financial services” high-cost loan products, including payday loans, while accounting for only 10% of households, renter and owner, overall. Similarly, renter households with incomes not exceeding $55,000 constitute between 29% and 37% of the users of alternative financial services, while accounting for only 19% of households overall.12 For high-cost lenders, the payoff to going after low-income renters is a solid core of customers who will reliably borrow again and again.
Conclusion
High-cost loan companies leverage the high rents and low incomes of renter households to feed their business model of repeat borrowing. Far from offering a way out of an unexpected financial bind, a high-cost loan leaves low-income renters even more unable to cover food, child care, transportation, and other routine non-housing necessities, able only to try, most assuredly unsuccessfully, to catch up with repeated use of the same abusive products.
1 CRL draft comment on overdraft rule. Overdraft, NSF Fees Bigger Burden Than Previously Estimated – Financial Health Network estimates that when data for credit unions and for banks with less than $1 billion in assets are included, overdraft fees in 2024 were $12.1B.
2 crl-down-the-drain-paydayloanfees-feb2025.pdf
3 crl-debt-trap-fee-drain-jun2023.pdf
4 201403_cfpb_report_payday-lending.pdf
5 Annual Report of Payday Lending Activity Under the California Deferred Deposit Transaction Law
6 Harvard_JCHS_Herbert_Hermann_McCue_measuring_housing_affordability.pdf interprets rent burden in this manner.
7 America's Rental Housing 2024 , p.2.
8 See J.P Morgan Chase Institute, forthcoming spring 2026, for a very recent discussion of the crisis of unaffordable rents.
9 Payday lenders can make a profit making unaffordable loans because the lenders take a super lien, that is, the borrower deposits their paycheck with the lender on payday. So, the lender is always paid first, even when the borrower cannot afford to pay their basic expenses. This dynamic is what forces many borrowers to take out successive additional payday loans.
10 CRL estimates using American Housing Survey data, excluding renter households that pay zero cash rent. $27,500 is approximately the poverty level for a family of three.
11 CRL estimates using American Housing Survey data, excluding renter households that pay zero cash rent.
12 The 15% and 29% figures are estimates using data from https://www.fdic.gov/household-survey/2023-fdic-national-survey-unbanked-and-underbanked-households-report and the American Housing Survey along with 57% higher payday loan usage among renters than among homeowners, controlling for income (https://www.pew.org/en/research-and-analysis/reports/2012/07/19/who-borrows-where-they-borrow-and-why). The FDIC report’s collection of alternative financial services includes payday, pawn, auto title, rent-to-own service, and tax refund anticipation loan. The 21% and 37% figures are estimates using data from //www.federalreserve.gov/publications/files/2023-report-economic-well-being-us-households-202405.pdf
and the American Housing Survey along with the 57% higher factor from the Pew study. The Federal Reserve’s collection of alternative financial services includes payday, pawn, auto title, and tax refund anticipation loan.