Defenders of the payday loan industry often suggest that their products are valuable because they reach a population systemically overlooked by the banking sector. In other words, they fulfill the surging demand for short-term loans in low-income communities. But as the legislative fight over payday loan reform advances in Washington and Springfield, it's worth remembering one crucial aspect of the payday loan business model: The industry creates demand for its own products by ensnaring borrowers in unmanageable debt. A new study released this week by the Center for Responsible Lending (CRL) sheds some necessary light on the topic.

According to their research, the fees required to take out an initial high-interest loan "virtually guarantees" that low-income customers will experience a shortfall before their next paycheck. Of course, that necessitates more short-term credit, which means consumers routinely take out additional loans to cover their first. In fact, the authors found that three-quarters of industry's loan volume is generated by "re-borrows." And a staggering 94 percent of customers take out new loans within 30 days of covering their initial expenditure.

CRL put out a video press release explaining their research, which was based (PDF) on the number of days between successive loans made to individual borrowers in Florida and Oklahoma, two states that have databases in which each payday loan transaction is entered. Watch it here: