Published November 14, 2017 15:47
SENIORS, WORKING FAMILIES, PEOPLE OF COLOR ARE HARMED BY HIGH-COST LOANS
Los Angeles, Nov. 14, 2017-- Earlier today, a group of more than 80 concerned religious and community leaders sent a letter to the Los Angeles County Board of Supervisors, urging the board to take action next month to address high-cost payday and car title lending storefronts in the County.
“Predatory lenders target our most vulnerable communities – particularly areas with high family poverty rates, which is why we’re asking for the board’s help,” explains Paulina Gonzalez, executive director of the California Reinvestment Coalition. “Payday and car title loans are advertised as quick, one-time Band-Aids for financial challenges, but the reality is four out of five of their customers get caught in a long-term debt trap. In Los Angeles County, we know that people are losing over $85 million to payday loan fees every year. We need local and state policy makers to take action to reform this industry.”
“It was troubling to learn that seniors are now the largest group of borrowers in California,” adds Rabbi Jonathan Klein, executive director of Clergy and Laity United for Economic Justice. “This is why we’re urging the board to take measures to prevent these lenders from concentrating in areas that are struggling economically. By doing so they can help protect seniors and working families who are on fixed incomes and who can’t afford to get caught in the payday loan debt trap. Local action would also help send a strong message to our state policy makers that reforms are sorely needed.”
“We’ve seen the same story play out again and again with the people we work with and high-cost payday and car title loans,” comments Isaias Hernandez, community service director at the Mexican American Opportunity Foundation. “People take out one loan to help with a financial emergency but instead they’re quickly in over their heads and drowning in fees, collection calls, closed bank accounts and financial heartaches. If we can limit the number of storefronts, we can make these harmful products less accessible to people in dire financial situations and prevent them from falling deeper into expensive debt that they can’t climb out of.”
“While these lenders like to position themselves as ‘neighborhood businesses,’ we are concerned that they’re disproportionately located in certain neighborhoods - namely in black and Latino communities. The board can put a stop to our communities being saturated with these financial predators” adds Leticia Andueza, associate executive director of New Economics for Women.
“Payday loans create financial disasters for people, so I’m urging the board of supervisors to do what they can to check these lenders,” explains Davina Esparza, a resident of Montebello. “Thanks to payday loans, my credit was damaged, I had difficulty finding housing and I experienced an incredible amount of stress. While I’m just one person, I know my story isn’t unique and most borrowers get caught in the same ‘debt trap’ I found myself in.”
While the Consumer Financial Protection Bureau recently released new rules to better protect consumers, the protections won’t take effect for almost two years, and may be at risk of Congressional repeal, which is why advocates are urging the board to act now.
Advocates are calling on the Board to enact an ordinance to protect LA county residents by limiting the saturation of these lenders in low-income communities and communities of color. Long Beach, for example, passed an ordinance in 2013 that restricts where alternative financial services businesses can locate and requires special permit approvals. In 2012, the City of San Jose enacted an ordinance that imposes a cap on how many payday loan stores are allowed to locate in the city. Numerous jurisdictions in California and around the country have passed similar policies.
Specific recommendations include:
1) Enact a limit on the number of alternative financial services locations allowed within the unincorporated areas of Los Angeles County.
2) Require conditional use permits for any new alternative financial services storefront locations.
3) Impose distancing requirements between alternative financial services businesses so that they don’t cluster in low-income communities and neighborhoods of color.
4) Impose distancing requirements between alternative financial services businesses and other sensitive uses, such as residential areas and liquor stores.
Additional context on payday loans: The California Department of Business Oversight recently released reports related to payday lending and to high-cost installment lending, which includes car title loans.
California Payday loan statistics for 2016 (click for more data):
• Seniors were the largest age group of borrowers in California last year, and took out nearly 2.7 million loans- nearly triple the number of loans taken out the year prior.
• 75% of profits for payday lenders in 2016 were derived from borrowers who were caught in the debt trap (people who took out seven or more loans).
• A 54% increase in charged off debt in 2016 confirmed advocate concerns that lenders are making loans they know are unaffordable to borrowers.
California high cost installment loan statistics for 2016 (click for more data):
• 58% of installment loans for amounts of $2,500 to $4,999 charged interest rates of greater than 100% last year, due in part to California having no interest rate cap for loans of greater than $2,500. A state bill to cap interest rates on installment loans was held by the California legislature earlier this year.
• More than 20,000 Californians had their vehicles repossessed in 2016 as a result of taking out a car title loan- a 22% increase from 2015.
• The number of loans for $2,500 or less (where interest rates are capped by state law) increased by 11.4% in 2015, confirming that lenders can lend responsibly while also earning a profit.
Multiple sender settlements: Contrary to claims of concerns about consumer access to credit, many payday loan and installment lenders have been forced to settle at the state and federal levels for alleged violations against their own customers- including companies like Advance America, Ace Cash Express, LendUp, CashCall, Western Sky Financial, ACH Federal, Billing Tree, National Money Service, and many more.