New report: California citizens’ dependence on payday loans has dramatically reduced government-related work-related unemployment benefits, rent relief, evictions, stimulus checks, and credit tolerance. However, experts warn that the use of wage loans is expected to resume once government assistance is completed.
This is an article español.
Epidemic government support may have helped some California people avoid using expensive payday loans last year, but some experts say it may be too early to pay.
According to a new report, California’s wage debt by 2020 has dropped by 40%, to $ 1.1 billion. Less than half a million people do not rely on payday loans, which is down 30% compared to 2019.
According to the California Department of Financial Protection and Innovation, last year’s outbreak caused unprecedented job losses, but government-sponsored funding was enough to have a significant impact on the payday loan industry. The new state department released its report last week as part of its efforts to monitor and control consumer financial products.
The report comes on the heels of California’s new $ 262.6 billion budget, and several programs are aimed at reducing the state’s economic imbalance. An unprecedented $ 11.9 billion will be spent on Golden State stimulus payments, a one-time benefit that will not continue in the coming years.
“When those benefits disappear, we expect higher wages,” said department spokeswoman Maria Luisa Cesar.
Temporary relief only
Industry representatives, state regulators, and consumer advocates agree: Government assistance has helped California citizens become less dependent on payday loans: Short-term, high-interest loans must be repaid in full when they receive their next paycheck. Further reports indicate that California trends reflect trends in other states.
Thomas Leonard, executive director of the California Financial Services Providers Association, said the 2020 outbreak was a difficult year for the industry as it changed the way consumers manage their money. Its association represents low-dollar consumer loans, payday loans, check money and other providers of consumer financial services.
In a statement, Leonard said: “Many consumers’ demand for micro-dollar loans by 2020 has significantly decreased due to the fact that many consumers stay home, pay their bills, manage lower expenses and receive direct payments from the government.
Caesar, on the other hand, said the decline in payroll debt did not mean that California residents were better off financially.
“This picture is very simple,” she said. Cash relief efforts have helped consumers in their daily lives, but people have not left the bush.
Marisabel Torres, California policy director for the Liability Center, said that while people have been relieved of the epidemic in California, some of those programs have an expiration date. For example, California’s eviction ends on September 30. Rental assistance has been delayed. Tenants with unpaid rent are being evicted from their homes by people who cannot afford to pay rent.
After those programs went, Torres said people needed financial support.
“There are still large numbers of people who continue to turn to these products,” says Torres.
With the exception of last year, the report shows that the use of payday loans has been stable for the past 10 years. However, in the years since the Great Depression, the use of payday loans has doubled.
The state report does not provide any context on how consumers will use their payroll loans in 2020, but In a 2012 Pew Charitable Trust survey, 69% of customers use the money for recurring expenses, including rent, merchandise and bills.
A.D. By 2020, about half of all wage earners earn less than $ 30,000 a year, and 30% earn $ 20,000 a year or less. While the Financial Supervision Unit could not explain why, annual reports also show more than $ 90,000 a year in customer spending.
“Basic needs, like merchandise, rent አለብዎት you have to pay for these things to live,” says Torres. Anything that reduces that economic burden is good for people.
Lawmakers all over California are launching experimental programs to alleviate that economic burden. Stockton was the first city to test your guaranteed income. Proven revenue efforts followed by national mayors Compton, Long Beach and Auckland. California approved its first guaranteed income program earlier this month.
Small rule, high fees
Payday loans are considered to be some of the most expensive and financially risky loans that consumers can use. Experts say last year’s reduction was good for Californiaers, but the industry still does not have the necessary regulations to reduce the risk of low-income consumers.
California lawmakers have a long history of trying to control borrowers’ debt in the state, but they have not been able to provide significant consumer protection from payday loans. The most popular law in California when it comes to asking for creditors is In 2002, he passed away. He also bought a $ 300 payday loan.
Unlike other types of loans, the loan is a short-term loan, in which the borrower promises to repay the loan in full. When lenders charge interest rates rather than interest rates, state regulators want to specify how expensive this type of loan is for consumers. By the end of the year, these loans have reached a total of 361% by 2020.
In addition to high interest rates, one of the industry’s main sources of income is those who are particularly dependent on regular payday loans.
A total of 164.7 million transaction fees – 66% of the industry’s payment revenue – came from customers who took out seven or more loans in 2020. About 55% of customers open new loans on the day their previous loan expires.
After many unsuccessful attempts to control the industry over the years, California lawmakers are not making major reforms during this session to fight the industry. Torres called for further legal efforts to reduce interest rates, including interest rates.
“It’s ridiculous for a policy maker to see that and think, ‘This is okay.’ It doesn’t matter if my competitors are in this situation, ”Torres said. When he is really in the power of California policymakers to change that.
Payday loan options
There is evidence that the reduction in pay day activity is related to COVID-19 relief efforts. While there are a number of reasons for the decline, stimulus checks can include the spread of debt, denial of credit, and growth in alternative financing options. He says the new industry, commonly known as “early pay access”, is a safer option.
The companies lend a portion of the customer’s paycheck over phone applications and do not pay interest. Although the product has not yet been inspected, the regional financial regulatory agency has announced that it will start screening five companies that currently provide the service.
According to Torres, the problem with this model is that there is no direct payment structure. For profit, the apps ask customers to leave a tip for the service.
“Unfortunately, that suggestion is often a cloud of how much your loan will cost you,” Torres said, adding that some companies have even resorted to psychological methods to encourage customers to leave a large margin.
“Customers are relieved to know that our industry is still there for them in the most challenging of circumstances, and we are proud to be there in this time of crisis,” Leonard said.
Although activity declined last year, 1.1 million customers borrowed a total of $ 1.7 billion last year, with 75% repaying at least one additional loan in the same year.
According to Torres, the responsible lending center has continued to work with lawmakers to write interest rate increases to make wages more affordable. He said the lender’s request to assess the customer’s ability to repay the loan would also prevent customers from falling into debt traps.
“They act as if they had given this life-saver to anyone,” says Torres. “That doesn’t save lives. They are anchoring the client. ”
For information – the previous version had the wrong year when California received payday loans. It was 2002. The story is also updated to explain how payday loans work and how loan costs are revealed to consumers.
This article California division, Collaboration between news departments examining income inequality and economic existence in California.