Payday lending has become an increasingly important part of the financial management strategies of low-income Australians, and the sector is one of the fastest growing parts of Australia's consumer finance industry, according to a new study.And, contrary to the industry's assertion that payday loans meet one-off emergency needs, two-thirds of participants in the study were continuously indebted to one or more short-term, small-loan companies for considerable periods of time.Research for the report, Caught Short, was conducted jointly by RMIT University, the University of Queensland, the Queensland University of Technology, National Australia Bank and the Good Shepherd Youth and Family Service. It was based on a survey of 112 payday lending customers, as well as lenders and financial counsellors.The sector, which includes payday lenders and pawn shops, is small, with a market size of A$800 million, but it is, according to the report, the fastest growing part of Australia's consumer finance industry.Around 80 per cent of the research participants had incomes of less than A$31,000 and were receiving Centrelink payments, or were pensioners. Fifty-four per cent of people borrowed less than $300, and another 21 per cent borrowed between $301 and $500.More than half the respondents had taken out more than 10 loans in the last two years. Common borrowing practices include "cycling", which involves taking out a new loan as soon as the previous one is paid off, and "spiralling" - using part of a new loan to complete payments on an old one.About 25 per cent regularly took out two or more loans from different lenders.Fewer than seven per cent owned a credit card and 60 per cent had a poor credit rating. The core demand for payday loans originates from households with poor credit.People take out payday loans to meet regular expense, such as foods, bills and rent. This finding is contrary to the industry's assertion that payday loans meet emergency needs.The core of most lenders' business is repeat borrowing. A number of lenders indicated that repeat borrowers made up the bulk of customers on their books. Repeat borrowers are preferred because they tend to be more reliable and they build up to larger loans.Recommendations in the report include an increase in Centrelink payments. Many borrowers said their incomes needed to be higher if they were to reduce their reliance on short-term loans.