Payday lenders are looking to bounce back


Blair Reeves |

California payday lenders have seen a sharp drop in lenders and borrowers during the pandemic in 2020, despite initial unemployment and unemployment rates.

The Department of Financial Protection and Innovation (DFPI) reported a 40% drop in payday loans in 2020. Annual report 2020 on payday lending activities.

In a press release, DFPI Deputy Commissioner Christopher S. Schultz estimated that payday loans declined during the pandemic for a number of reasons, including factors such as stimulus checks, loan deferrals and the increase in alternative loan options. Was done. “..

Payday lenders suffered losses of more than $ 1.1 billion, based on the total amount of payday loans in 2019.

Pandemic stimulation that provides short-term relief

“The drop is likely a combination of additional government payments such as stimulus and increased unemployment, and the impact of being unable to pay rent, student loans and, in some cases, utility bills. is mitigated, ”he said. Gabriel Krabitz, head of consumer finance projects at The Pew Charitable Trust, explains. “According to our research, 7 out of 10 borrowers use these loans to pay those recurring bills.”

Declining use of payday loans for Californians has helped federal and statewide stimuli and helped millions of people pay rents, utilities, and other impending bills. It may be due to the program. However, this protection has ended or will end soon, and the state will resume operations as usual.

“As pandemic measures diminish, the amount of loans and the number of borrowers may recover,” Krabitz said.

According to the Center for Responsible Lending (CRL), California is one of 14 states with high payday loan rates. CRL classifies these states as “payday loan interest rate debt traps.”

California borrowers experience some of the highest APR rates in the country. (sauce: Courtesy of Maps and Data Responsible credit center..)

According to state data for 2020, the average California borrower with a loan of $ 246 was in debt for three months of the year, paying $ 224 for the fees alone and paying a total of $ 470. According to Kravitz, the loan expires in two weeks, but in reality it expires all at once.

“And that’s about a quarter of the salary of a typical California borrower, and those struggling to earn an income lose a quarter of their salary and still rent (or) food.” It is very difficult to pay bills for the purchase of goods, ”says Kravitz. “Therefore, in many cases, the borrower will borrow another loan on the same day and be in debt for several months instead of two weeks.”

Who will be affected?

Nova Scotia Report A 2012 survey by The Pew Charitable Trust identified payday loan outcomes, including who borrowed them and why.

One of the notable findings of the report is that, besides the fact that most payday loan borrowers are white and female, aged 25 to 44, “other groups are more likely to use payday loans. salary. There were five. A group that doesn’t have a four-year college. Graduates, tenants, African Americans, people with an annual income of less than $ 40,000, divorced or divorced. “

“We also know that payday loan dealers have been around in these communities for quite some time, particularly in communities of color, black and brown,” payday loans and predatory debt practices. “So they can present themselves as quick access to money, but we’ve known for some time the damage that has exacerbated the racial wealth gap for these communities. to augment.”

2016 California Business Surveillance Authority Survey We found that the number of loan retailers per capita in the community of color was higher than that of white retailers.

“Almost half of the payday storefronts were in zip codes where the poverty rate for black and Latino families was higher than the rate for these groups statewide,” the report said.

This table shows the average APR rate for payday loans in California. The APR in 2020 increased from 369% in 2019 to 361% in 2020. (sauce: Courtesy of the California Department of Financial Protection and Innovation)

“I think the very important data point of the California 2020 report is that most of the income, which is 66% of income, comes from borrowers who took more than 7 loans in 2020. The loans, their first affordable loans, in turn generate additional loans, ”says Krabits. “And that’s where it generates most of the income, and that’s the crux of the matter.”

California has a payday loan limit of $ 300, which, although referred to as a “short term” loan, is seen as an economic trap for consumers, especially low-income people. I am. California borrowers are charged 2-3 times more than borrowers in other states under the reformed payday loan law.

Payday loan protection

Consumer protection for California’s small loans is almost non-existent, except for a $ 300 payday loan cap and lender licensing requirements. SB 482 The Consumer Loan Restriction Act was introduced in the state in 2019, but died in the Senate in 2020.

In 2019, California set a 36% interest rate cap on large loans between $ 2,500 and $ 9,999 under fair access to credit laws, but Rios provided those protections for small ready. He explained that it would be beneficial for consumers to expand.

In 2017, the Consumer Financial Protection Bureau (CFPB) introduced rules that allow lenders to determine whether a borrower is able to repay a loan before approving it. some of the protections initially put in place.

“Currently the CFPB doesn’t have payday rules to protect consumers, and that’s a really important point, because (2017 rules) has some capacity to repay these types of loans. Because I was sure to see it, with the ability of the person to repay the loan before it was issued, ”Rios said. “And that’s how the cycle begins.”

According to a study by Pew Charitable Trust, CFPB and California lawmakers have the potential to make small loans more affordable and secure by implementing more regulations and providing for longer installment periods.

Colorado reformed in 2010, according to Pew, replacing its two-week payday loan with a six-month payday loan with interest rates nearly two-thirds lower than before. Currently, the average Colorado borrower pays 4% of their next salary towards a loan instead of 38%.

“Perhaps the most important thing to note right now is what federal regulators can do. The Consumer Financial Protection Bureau quickly reinstated the 2017 payday loan rules and exhausted the damage from the two-week payday loans. You can have strong protection for people. ”Krabits.

Breanna Reeves, a reporter in Riverside, Calif., Uses data-driven reports to address issues affecting the lives of African Americans. Breanna will participate in BlackVoiceNews as a report for members of the US Corps. Earlier, Breana reported on her activities and social inequalities in her hometown of San Francisco and Los Angeles. Breanna holds a BA in Print and Online Journalism from San Francisco State University. She holds an MA in Politics and Communication from the London School of Economics. For advice, comments, and concerns, please contact Breanna at breanna @ or Twitter @ _breereeves.

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