California Reinvestment Coalition

Payday Lenders in California: How Predatory Lenders Trap Consumers

Important Update: The Consumer Financial Protection Bureau (CFPB) announced proposed rules for regulating payday, car title, and other high cost consumer loans in March 2015, and then announced new, proposed rules in June, 2016.  In October, over 100 community organizations from California weighed in, urging the CFPB to finalize a strong rule for payday, car title, and high-cost lenders, that puts a top priority on protecting borrowers- not on protecting profits from predatory loan products.

Background: Why are payday loans dangerous to your financial health?  

While payday loans are advertised as a quick, "one-time fix" for a financial emergency, the reality is that most people who take out a payday loan will have a very difficult time paying that first loan back when it comes due two weeks later. Most borrowers end up "rolling over" or renewing that first loan multiple times, and incurring costly fees to do so.  In fact, when the CFPB looked at more than 12 million loan transactions, they found that 4 out of 5 loans were either renewed or rolled over within 2 weeks of the borrower obtaining it. These rollovers are problematic because they're incredibly costly for the borrowers, and also mean that income intended for things like rent and food are now being diverted to pay high-cost fees to payday lenders. Car title loans are also predatory- with 1 in 5 of the loans leading to the car being repossessed.  You can learn more about how payday loans work using our handout. 

Over the last several years, CRC has been a leading advocate for reform of the predatory payday loan industry in California. We have partnered with our members and allies to launch the Campaign Against Payday Predators (CAPP). We organize local campaigns to restrict the expansion of payday loan outlets in our communities. In addition, we work at the state level to advance consumer protections from unscrupulous payday lenders by pushing for a 36% cap on the annualized percentage rate (APR) of interest on payday loans. CRC's executive director, Paulina Gonzalez, testified at the March 2015 hearing about the damage caused by payday loans in California. 

Share your story to help us push for stronger rules: If you have used payday, car title, or high-cost installment loans, consider sharing your story as part of our efforts to win stronger consumer protections: SHARE YOUR STORY.

What is the impact of payday loans in California?

We're glad you asked!  Take a look at our new fact sheet, which includes data from the California Department of Business Oversight, as well as other data on the negative impact payday loans have on households and our state economy.

California Payday Loan Brochure 

Click Here to download CRC's new Payday Loan Fact Sheet

Click here to learn more about payday loan products. 

CRC played a leadership role in advocacy against bank payday loans, innocuously called "deposit advances," and we were happy to see these products would no longer be offered by Wells Fargo or US Bank. We are also pressing the big banks- Wells Fargo, Bank of America, JP Morgan Chase and US Bank- to stop financing payday loan corporations. 

Regrettably, the California state legislature has failed to enact any meaningful protections for consumers from this industry. The California Deferred Deposit Transaction Law, which authorizes payday lending, only imposes licensing obligations and disclosure requirements for interest rates and loan terms. The law does not protect borrowers from the usurious interest rates on the loans. Nor are there any regulations that would help prevent a borrower from falling into the payday loan debt trap, such as a minimum repayment period of 30-60 days, a limit of 4-6 loans per year, and, most importantly, an interest rate cap.

Recently, CRC has joined with other consumer advocates in opposing and defeating a number of industry-backed attempts to raise the maximum payday loan amount from $300 to $500. In 2011, we fought Assembly Bill 1158, introduced by Assembly member Charles Calderon (D-Whittier), and in 2010, we fought Assembly Bill 377, introduced by Assembly member Tony Mendoza (D-Artesia). It is critical that we continue and grow our efforts to build a movement against predatory payday lending.

Cities that have already enacted local land use ordinances or adopted resolutions against payday lending include Sacramento, San Francisco, Oakland, Oceanside and San Diego. 

Is the Payday Loan debt trap a real thing?

In a word, yes. The picture below was released by the CFPB as part of its settlement with Ace Cash Express.  It's a training page from their "new employee training manual." In the diagram, you can see how employees at Ace Cash Express were instructed on how to keep borrowers in debt.  Lenders want borrowers who are stuck in this debt trap because its where they make the majority of their money- from people with multiple loan roll-overs or renewals.

Ace Cash Express

Resources You Might Be Interested in:

1) The Payday Lender Hall of Shame Compilation of the worst practices and companies in the industry

2) Editorials Against Payday Lenders Over 100 newspapers across the US have editorialized against this industry- is your newspaper one of them?

3) Teaching California youth about predatory payday lenders 

4) Long Beach Votes to Limit Payday Lenders, Check Cashers, and Car Title Lenders

5) Want to Honor Vets? Stop Gouging Them with Payday Loans

6) Eight Reasons NOT to get an Online Payday Loan

Related Links

The interest rate on a two-week, $300 payday loan is 459% APR. Click here to learn more about payday loan products and their costs.

Newspapers across the country have written editorials AGAINST payday lenders.  You can read them here: Editorials Against Payday Lenders