OAKLAND, CA – The California Department of Business Oversight (DBO) recently released its 2016 report on the state’s payday lending industry. The study showed the number of seniors caught in the debt trap, age 62 and older, nearly tripled since 2015. The study also showed that annual percentage rate (APR) for these payday loans rose to 372 percent, up from 366 percent reported in the previous year and that the industry is still heavily relying on repeat borrowers.

"The number of seniors caught in the vicious payday lending debt trap is concerning and indicative of the type of group the industry targets," said Graciela Aponte-Diaz, California Policy Director at the Center for Responsible Lending (CRL). "Struggling California seniors often live off their social security benefits or other fixed incomes to make ends meet. Having predatory lenders like the payday lending industry stifle money from these older Americans to make a profit is abusive and will only get worse if our state legislature doesn’t act to curb these bad practices—including stopping the increasing triple digit APR rates and capping high-cost installment loans. Payday lenders are also notorious for targeting low-income borrowers and communities of color, which widens the racial wealth gap and strips wealth opportunities for families. We thank the DBO for compiling this important information and urge our state lawmakers to act swiftly and find solutions that end the debt trap in California."

Specifically, the report shows:

  • Growing concern about impact on older Californians: Nearly 1 in 4 payday loans went to people over 62 years old.
  • Repeat borrowing is core of payday lenders’ business model: 75% of all payday loan fees are extracted from borrowers with 7 or more transactions a year.
  • Living in a cycle of debt is the typical borrower experience: A California payday loan borrower is stuck in 6 payday loan transactions, on average. These repeat loans are taken out soon after a borrower pays back their previous loan–of repeat loan transactions, nearly 80% of new loans were taken out within 7 days of old loan.
  • Most consumers are unable to have their day in court: 51% of payday lenders have clauses requiring arbitration and 28% have arbitration clauses prohibiting class actions.
  • Payday lenders are squeezing more out of existing customers: Payday loan volume and number of consumers are declining, but payday loan sizes and prices have increased.

A previous DBO report has also showed that payday loan stores in the state are disproportionately located in heavily African American and Latino neighborhoods. Combined, African Americans and Latinos make up almost 44% of the state's total population--and in those communities, on average, nearly 60% had six or more payday loan stores compared to white communities at 28%. This research reflects a 2009 report by CRL that shows even after controlling for income and a variety of other factors, payday lenders are 2.4 times more concentrated in African American and Latino communities.

The best solution to the payday loan debt trap as made evident by the DBO’s report is to cap the rate at 36%, just like 15 states plus D.C., and what’s currently in place for active duty military families. CRL continues to urge California lawmakers to support reducing the cost of these harmful loans to 36%.

For more information, or to arrange an interview with a CRL spokesperson on this issue, please contact Matthew Kravitz at matthew.kravitz@responsiblelending.org or 202-349-1859.