Like many people, Andrew Butler sometimes finds it difficult to make ends meet. When he is short of cash, he does what an estimated 1.9 million California residents did last year.
He visits a payday loan establishment
“Due to additional family expenses, I found myself unable to purchase groceries to feed everyone at home,” Butler said. “With a payday loan, I was able to stock up on food and supplies without having to ask my friends and family for money. … When I have trouble paying the bills, I’m thankful to have these loans as a backup.”
But Butler soon may have to change how he makes ends meet.
The Consumer Financial Protection Bureau (CFPB), a federal agency with authority over financial institutions making small loans to consumers, proposes to regulate payday lenders, including the 1,969 stores in California.
That proposal was supported unanimously by the county Board of Supervisors Sept. 13.
“Californians now pay over $700 million in fees on these loans every year,” Supervisor Hilda Solis said at the Board of Supervisors meeting. “Our families are trapped in cycles of high-cost debt.”
The board voted to support the CFPB’s proposals “targeting predatory lending practices by payday, car title and installment lenders.”
Last year, Californians borrowed $4.2 billion in payday loans at an annual percentage rate of 366 percent, according to the state’s Business Oversight Dept.
The CFPB reports that “80 percent of payday loans are rolled over. … Seventy-five percent of payday loans are generated by consumers who take out 10 or more…loans a year.”
The CFPB, which was created under Dodd-Frank Wall Street financial reform legislation in the wake of the 2008 financial crisis would tamp down on loan renewals, concerned that “the initial loan will lead to an extended cycle of indebtedness.”
Californians can borrow money from payday lenders by writing a check on a personal account and paying a $15 fee per $100 borrowed. The loan is repayable in full within two to four weeks. The check amount is limited to no more than $300 for a fee of $45.
But according to the Center for Responsible Lending, “The combination of high fees, short repayment terms and required balloon payments leads most payday customers to borrow repeatedly
Loan approval is fairly simple.
In February, Dennis Shaul, chief executive of the Community Financial Services Association of America, told the House Financial Committee: “To obtain a payday loan from one of our members, a borrower needs an active checking account, proof of regular income and proper identification.”
Koreatown resident Larry Williams used a $250 payday loan years ago.
“It is like buying used cars in the black community — the interest rates are far too high,” Williams said. “I was getting paid several days after the bill was due. … That was the only reason I used it.”
Shaul said, “Payday lenders meet a need in the American economy that traditional lenders are unable or unwilling to provide. … The availability of small-dollar, short-term credit is a benefit to the consumer that cannot easily be replaced, if at all. Banks that once provided [it] no longer do so.”
Gynnie Robnett, campaign director for Americans for Financial Reform, had a different assessment.
“Payday lenders target low-income [people] and communities of color,” she said. “It is an abusive scheme that has dragged countless lower-income Americans into bankruptcy, destroyed their credit and trapped them in financial quicksand.”
Williams voiced a similar concern: “Instead of our dollars going to other black people, they go out of the community to other communities to build theirs — while ours goes down.”
Along one commercial corridor in a low-income South L.A. community, a Wave reporter counted three lenders, two on opposite corners — another, blocks away. State data are not available regarding payday lender locations in the county and neighborhood demographics.
The lower-income figures are supported by the customer figures and research by nonprofit Pew Charitable Trust. “Roughly 60 percent of the payday customers responding to the Business Oversight Department’s 2015 survey had average annual incomes of $30,000 or less,” Pew researchers said.
Pew researchers also found that, “most payday loan borrowers are those earning below $40,000 annually. Additionally, most are white, female and 25-to-44 years old.
Pew also found five groups with higher odds of having used a payday loan: those without a four-year college degree; home renters; African Americans; and those who are separated or divorced.
Among the requirements of the 1,300-plus page regulation proposed by the CFPB — which also covers vehicle title and other small installment loans — borrowers would be required to wait 30 days between loans.
Lenders would need to assess the ability of customers like Butler, Williams, and “Anonymous” in New Hampshire, to repay the loans.
Anonymous told Pew researchers: “I had to come up with money [when] my husband was out of work, and I actually was up to $900 [in storefront payday loan debt]. … My entire check was gone the next two weeks, so that’s when I went to the online ones. … And then after I did the online ones, and got in that loop, and got stuck in there, I went back to the store again, and, yeah, it got bad. And my [checking] account ended up pretty negative. I had to close it out totally.”
Speaking to the House Committee, Shaul expressed concern about the future of the industry and borrowers.
“The CFPB is pursuing a course that will decimate the industry and leave consumers in need at the mercy of unregulated lenders,” he said. “Those needs will not disappear even if the lenders offering those products do.”
The public can comment on the CFPB’s proposed regulation on or before Oct. 7 atconsumerfinance.gov.
Robnett said she “expects CFPB to receive 100,000 comments by the Oct. 7 deadline.”