OAKLAND, CALIF. – Two annual reports released this month by the California Department of Business Oversight (DBO) reveal that predatory lenders are still reaping millions of dollars by trapping Californians in unaffordable debt. The DBO reports focus on payday and installment lender activity data from 2018.
Lending data shows that the majority--55 percent--of loans being made in the $2,500 to $4,999 range, carry an annual percentage rate (APR) of 100 percent or more. Loans over $2,500 are currently not subject to an interest rate cap. In 2018, DBO settled with Advance America, Check Into Cash, Quick Cash Funding, for steering California borrowers into loans of $2,501 for the express “purpose of evading” the interest rate caps for loans under that amount.
The DBO findings also note the increase in the number of loans made under $2,500, from 493,273 in 2017 to 558,062 in 2018, representing a 13.31 percent increase in volume. These loans are subject to an interest rate cap. Lending in this range continues to increase and this contradicts the argument made by payday lenders that loans are not being made in the dollar range where California has an interest rate cap.
In addition, the agency’s data on California payday lending underscores these lenders’ reliance on keeping people unaffordable debt, resulting in millions of dollars in fees stripped from the pockets of low-income Californians across the state. Fees from customers stuck in seven or more loans in the year made up the bulk--70 percent--of all fees collected by payday lenders, representing a staggering $297.3 million. Subsequent loans made to the same borrower represented 75.8 percent of all payday loans in 2018.
“Considering the fact that half of all payday loan users had an average annual income of $30,000 or less, the amount of fees stripped from borrowers trapped in a debt cycle shows how predatory these toxic loans truly are,” said Marisabel Torres, Director of California Policy at the Center of Responsible Lending. “The data confirms the well-known story of high-cost lenders’ bottom line being driven by sinking people into a debt traps. Whether structured as short or long-term loans, these high-cost unaffordable loans lead to devastating consequences for Californians that hinder financial stability and opportunities to build wealth for the future.”
Other key takeaways from DBO’s data include the influence of targeted marketing in this industry. Predatory lenders are increasingly relying on lead generators to bring in business. Payday loan borrowers who were referred to lenders by lead generators represented 17 percent of all payday borrowers--an increase of 153 percent since 2017.
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