If you are short on cash and need some money before your next paycheck, there is a quick fix for that, but you could end up paying a high price for it.
There are nearly 1,300 McDonald’s in California and more than 1,700 licensed payday lenders, according to a report by the California Department of Business Oversight.
A study by Pew Charitable Trusts showed 5 percent of Californians take out a payday loan each year, adding up to nearly $3 billion annually.
Acquiring a loan doesn’t take much. No credit score is necessary, just bring identification, proof of income, and a bank statement, and you can walk out with cash.
“People are falling prey to these really, really high-interest rates,” said Antoinette Siu, a journalist who wrote an in-depth piece for CALmatters, a nonpartisan, nonprofit journalism venture, on the payday lending industry and the legislature killing a number of bills in 2018.
Siu reported in 2016 that more than 80 percent of the 11.5 million payday loans in the state were taken out by a repeat borrower, a practice known as loan stacking.
“If you aren’t able to repay that, you end up taking out another loan and stacking it on top of those previous ones,” she said. “Last year, 1 in 4 took out 10 or more of these loans in a year. So it’s a very common thing.”
That stacking can lead to financial danger for those taking out multiple payday advances and installment loans.
Here is an example of a payday loan online from Money Key that allows a max of $255 to be borrowed.
Here is an example of an installment loan online from Money Key that is $2,600.
“With those high triple-digit percentage rates from 300 to 400 percent, you’re taking out $300, $250, you end up paying back around $1,300 or more.”
The California Supreme Court said courts “have a responsibility to guard against consumer loan provisions with unduly oppressive terms,” according to the Los Angeles Times. That responsibility includes interest rates it considered “unconscionable” on consumer loans for $2,500 or more.
The legislature has not fared well in the fight for tougher regulations. Last year, lawmakers introduced five bills, calling for additional regulations on the payday lending industry. All of them failed.
This year, Assembly Bill 539 would cap loans between $2,500 and $10,000 “at a rate not exceeding an annual simple interest rate of 36% plus the Federal Funds Rate.”
Tom Dresslar is the former Deputy Commissioner at the California Department of Business Oversight. He says lobbying from the lending industry led to each bill’s demise.
“Our payday law is one of the weakest in the country,” Dresslar said. “It’s been too long. It’s about time the legislature stand up and protect consumers and stop doing the bidding of the industry.”
California Financial Service Providers Association says the services offered are vital for Californians in need of funding they can’t find at a bank.
“It’s important for California consumers to have access to capital even at the smaller dollar level,” said Roger Salazar, spokesman for CFSP. “Millions of Californians can’t get a loan from a bank or a credit union because they don’t have a prime credit score because many banks don’t make loans below $10,000.”
Salazar argues that California is already well regulated, but going too far could crush the needs of millions of consumers.
“Is the industry open to some sort of reasonable arrangement? I think they are, but you just can’t legislate them out of existence,” he said.
Assemblywoman Monique Limon from Goleta unveiled a new bill Wednesday to cap annual interest rates on personal loans while providing regulatory stability for lenders to expand and offer safer loan alternatives to consumers.
