According to a recent study, payday loan rollovers are taken by most payday loan seekers. A rollover loan is a second loan from the same lender to payback the original loan.

Some even take out a second loan from another borrower to payback the first loan. However it is a bit difficult to get a second payday loan without paying back the first loan. So, a majority payback the first loan and apply soon after for a second payday loan.

A new study by the Center for Responsible Lending has found that the main reason why people seek a second loan is that repayment leaves them with inadequate funds for other needs.

Payday loans require borrowers to sign over their next paycheck in exchange for a cash advance of a few hundred dollars with an interest rate as high as 400 percent.

The report examined the loan activity of the more than 80 percent of borrowers who take out more than one payday loan a year. The borrowers generally opened new loans soon after repaying the old one, with 87 percent of all new loans occurring during the next pay period.

Nearly 59 million loans totaling more than $20 billion fit this pattern, accounting for three-quarters of all payday loan volume, the study found. The loans resulted in $3.5 billion worth of fees each year.

From next month, i.e. August 2009, there will be new rules for Nova Scotia payday lenders.

Nova Scotia Utility and Review Board had set a fee cap on payday loans last year – this will come in effect from next month onwards.

Here is the new rule:

Payday lenders in Nova Scotia cannot charge more than $31 per $100 borrowed, which includes all non-optional fees tied to the loan. Default fees cannot exceed $40 per loan; and the interest rate on loans in default cannot exceed 60 per cent annually.

Payday loan rates in Nova Scotia range from about $15 to $35 per $100, according to evidence submitted to the regulatory board.

If this isn’t enough, the rollovers are also banned.

Payday lenders will have to submit annual reports to the province every year.

The Utility and Review Board will also carry out a review of the regulations in 2010.