SENIORS, COMMUNITIES OF COLOR WILL BENEFIT FROM SAFEGUARDS IN NEW RULE
San Francisco, CA, October 5, 2017— In response to new payday loan rules released by the Consumer Financial Protection Bureau today, Paulina Gonzalez, executive director of the California Reinvestment Coalition, released the following statement:
“Here in California, seniors were the largest group of borrowers who used payday loans last year- an alarming statistic, especially since many are on a fixed income that makes paying off these loans nearly impossible. Research has also found that the greater number of these lenders in a community, the worse the financial health is for consumers living in that community.
The importance of this rule for protecting seniors, communities of color, and all working families who use payday loans can’t be overstated. The majority of people who use a payday loan have found themselves quickly ensnared in the payday loan debt trap of lost income, repeated rollovers, and financial hardships and heartaches. The CFPB’s new rule will help put an end to these abusive lending practices.
This rule is another example of the CFPB standing up for working families on Main Street to ensure they’re not being taken advantage of by unscrupulous companies who peddle products that siphon away precious income and assets.
Under Dodd Frank, the CFPB was prevented from addressing the outrageously high APRs that payday lenders charge (the average APR charged on payday loans in California was 372% in 2016). However, state and local governments can and should protect borrowers and communities by enacting state legislation to limit the interest rates charged by these lenders and local ordinances to restrict the growth of high-cost lending storefronts, especially in vulnerable neighborhoods.”
1) Rulemaking process: CRC worked with more than 100 California organizations and a number of consumers to submit comments to the CFPB in 2016 as part of its rulemaking process, urging the Bureau to implement strong reforms to protect consumers.
2) New California data on payday and car title lending: 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):
1) Seniors took out nearly 2.7 million loans in 2016- nearly triple the number of loans taken out the year prior.
2) 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).
3) 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):
1) 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.
2) 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.
3) 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.
3) Lender 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.