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Online Pew Center study includes interactive data on payday loans

California is among states with the least regulation of payday lending, allowing loans that if renewed repeatedly would sock borrowers with 391% annual interest rates or higher, according to a new study that classifies states as permissive, restrictive or in between.

The study was released Thursday by the Pew Charitable Trusts. In addition to state-by-state information, it provides a quiz to test readers’ knowledge of  the payday industry, which operates over the Internet as well as out of storefronts in lower-income neighborhoods.

The report, based on a national telephone survey conducted from August 2011 through April, estimated that Americans spend $7.4 billion a year on payday loans, including an average of $520 in interest per borrower for eight $375 loans or extensions.

Payday advance loans allow the working poor to borrow small amounts by pledging to repay them out of future paychecks.  The industry describes them as efficient short-term “financial taxi” loans enabling borrowers to meet pressing needs in between their paydays.

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Critics say they often become a debt trap, as borrowers renew them again and again instead of paying them off – a complaint the Pew study said is justified.

“Payday loans are marketed as two-week credit products for temporary needs. In truth, average consumers are in debt for five months and are using the funds for ongoing, ordinary expenses – not for unexpected emergencies,” said Nick Bourke, project director for Pew’s Safe Small-Dollar Loan Research Project.

Amy Cantu, a spokeswoman for the Community Financial Services Assn. of America,  said the payday lender trade group had been notified of the study on Wednesday and would not comment until finishing an analysis of it, probably next week.

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