Blair Reeves |
California payday lenders experienced a sharp decline in lenders and borrowers during the pandemic in 2020, despite the initial unemployment and unemployment rates.
The Financial Protection and Innovation Division (DFPI) reported a 40% reduction in payday loans in 2020. 2020 Annual Report on Payday Loan Activities..
In a press release, Christopher S. Schultz’s Deputy Commissioner of DFPI believed that payday loans declined during the pandemic for a number of reasons, including factors such as stimulus checks, loan deferments, and increased alternative lending options. Has been done. ” ..
Payday loan lenders suffered losses of over $ 1.1 billion, according to the total amount of payday loans in 2019.
Pandemic stimulus that provides short-term relief
“The decline is probably a combination of additional government payments like stimulus and increased unemployment, and the impact of not being able to pay rent, student loans and, in some cases, utility bills is lessened,” 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 for these recurring bills.”
Decreasing reliance on payday loans for Californians has helped federal and state-wide stimuli and help millions pay rents, utilities, and other imminent invoices. It may be due to the program. However, such protection has ended or will soon end, and the state will resume operations as usual.
“As pandemic measures are shrinking, the amount of loans and the number of borrowers may recover,” said Krabitz.
According to the Center for Responsible Lending (CRL), California is one of the 14 states with high payday loan rates. The CRL classifies these states as “payday loan interest rate debt traps.”
According to state data for 2020, the average California borrower with a $ 246 loan was in debt for three months of the year, paying $ 224 for fees alone and paying a total of $ 470. Did. According to Kravitz, the loan expires in two weeks, but in reality it expires all at once.
“And it accounts for about a quarter of the salary of a typical California borrower, and those who are struggling to earn income lose a quarter of their salary and still rent (or) food. It’s very difficult to pay invoices for purchasing goods, “says Kravitz. “Therefore, in many cases, the borrower will borrow another loan on the same day and will be in debt for several months instead of two weeks.”
Who will be affected?
NS report A 2012 survey by The Pew Charitable Trust identified payday loan findings, including who borrowed them and why.
One of the notable findings of the report is that, apart from the fact that most payday loan borrowers are white and female, aged 25-44, “the other groups are more likely to use payday loans. There were five in. A group that does not have a four-year college. Degrees, renters, African-Americans, people with an annual income of less than $ 40,000, divorced or divorced. “
“We also know that payday loan resellers have existed in these communities for quite some time, especially in the color, black and brown communities,” payday loans and predatory debt practices. “So they may market themselves as a quick access to cash, but we’ve known for quite some time the harm that has exacerbated the racial wealth gap for these communities. increase.”
Survey from 2016 California Business Surveillance Authority We found that the number of loan retailers per capita in the color community was higher than that of white retailers.
“Almost half of the payday storefronts were in zip codes where the poverty rate of black and Latino families was higher than the state-wide rate of these groups,” the report said.
“I think the very important data point of the California 2020 Report is that most of the revenue, which is 66% of the revenue, comes from borrowers who took out more than 7 loans in 2020. Loans, their first affordable loans, in turn generate additional loans, “says Krabits. “And that’s where it’s generating most of the revenue, and that’s the heart of the matter.”
California has a $ 300 payday loan cap, which, despite being called a “short-term” loan, is considered an economic trap for consumers, especially low-income earners. 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 482The 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 these protections for small loans. He explained that it would be beneficial for consumers to expand to.
In 2017, the Consumer Financial Protection Bureau (CFPB) introduced rules that allow lenders to determine if a borrower is capable of paying back a loan before approving it.But in 2020, the CFPB rules will Fix Clarify bans and practices by debt collectors and eliminate some of the protections initially implemented.
“Currently, the CFPB doesn’t have payday rules to protect consumers, and that’s a really important point, because (2017 rules) has some ability to repay these types of loans. Because I was assured of seeing it, with the ability of the person to repay the loan before issuing it, “Rios said. “And this is how the cycle begins.”
According to a Pew Charitable Trust study, CFPB and California lawmakers have the opportunity to make small loans more affordable and safer by implementing more regulations and having longer installment payment periods.
According to Pew, in 2010 Colorado reformed by replacing its two-week payday loan with a six-month installment payday loan with interest rates nearly two-thirds lower than before. Currently, the average Colorado borrower pays 4% of his next salary to 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 has swiftly reinstated 2017 payday loan rules and consumed from the harm of two-week payday loans. You can have a strong protection for people. ” Krabits.
Breanna Reeves, a reporter in Riverside, California, uses data-driven reports to address issues affecting the lives of African Americans. Breanna will participate in BlackVoiceNews as a report for American Corps members. Earlier, Breana reported on her activities and social inequality in her hometown of San Francisco and Los Angeles. Breanna graduated with a bachelor’s degree in print and online journalism from San Francisco State University. She holds a master’s degree in politics and communication from the London School of Economics. For tips, comments and concerns, please contact Breanna at breanna @ voicemediaventures.com or Twitter @ _breereeves.
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