Loans Payday Loans 3

Question 1

According to the CFPB, approximately what percentage of payday loan borrowers end up taking out ten or more loans per year?

Accepted Answer

50%

Answer

CFPB research found that approximately 80% of payday loans are rolled over or renewed, and about 75% of loan fees come from borrowers who take out 10 or more loans per year, indicating widespread repeat use.

Question 2

What is a tribal payday loan?

Accepted Answer

A payday loan issued by a lender affiliated with a Native American tribe, often claiming sovereign immunity from state usury laws

Answer

Tribal payday lenders claim affiliation with Native American tribes to assert sovereign immunity, attempting to avoid state interest rate caps and consumer protection laws, though this is subject to ongoing legal challenges.

Question 3

What is the primary reason payday loans are disproportionately used by low-income and 'underbanked' consumers?

Accepted Answer

They offer quick access to cash with minimal credit requirements when traditional credit is unavailable

Answer

Underbanked consumers who lack access to traditional credit products such as credit cards or personal loans often turn to payday loans despite high costs because approval is fast and does not depend on credit scores.

Question 4

What does the term 'finance charge' represent on a payday loan disclosure?

Accepted Answer

The total dollar cost of the loan including fees and interest

Answer

The finance charge is the total dollar amount the loan will cost the borrower, including all fees and interest, as required to be disclosed under the Truth in Lending Act.

Question 5

Which of the following best describes 'predatory lending' as it relates to payday loans?

Accepted Answer

Using deceptive, unfair, or abusive practices to trap borrowers in high-cost loans they cannot afford

Answer

Predatory lending involves exploiting borrowers through deceptive terms, excessive fees, or targeting vulnerable populations with loans structured to generate repeat fees rather than help the borrower repay.

Loans Practice Test

Loans Practice Test

Loans Payday Loans 3