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WASHINGTON, DC - JULY 18: U.S. President Barack Obama (C) shakes hands with former Ohio Attorney General Richard Cordray during a presser to announce the nomination of Cordray as head of the in the Consumer Financial Protection Bureau as Special Advisor on the Consumer Financial Protection Bureau Elizabeth Warren (L) watches in the Rose Garden at the White House on July 18, 2011 in Washington, DC. The new bureau was created under a reform bill last year and intends to make basic financial practices such as taking out a mortgage or loan more clear and transparent to consumers while weeding out unfair lending practices. (Photo by Mark Wilson/Getty Images)
If you want to see what loan sharking looks like in modern America, look no farther than the payday lending industry. As this blog from the White House (yes, 1600 Pennsylvania Ave. blogs) points out, 20 million Americans use payday loans — and the average interest rate charged on a two-week loan is 400 percent!
The White House used a $100 loan as its basis. From a payday lender, a Benjamin winds up costing the borrower $16. If you accept that 20 million figure, this means that on $100 loans, the payday lending racket is bringing in $320 million every two weeks. OK, that's simple math and may not represent reality. But perhaps not that far off, as some borrowers will borrow more, some less.
Just for context, 20 million Americans equals 6.5 percent of the population. That's an alarmingly high number of people who are exposed to a horrifically high level of short-term interest. But it also explains why the payday lending business has taken off.