LOS ANGELES, CA – Recent research by the California Department of Business Oversight found that more than 60% of California payday loan storefronts are concentrated in areas with family poverty rates higher than the state average. Following a December 2017 motion by Supervisor Hilda L. Solis that directed County Departments to examine the impact of high-cost loans, today the Board of Supervisors passed a motion, authored by Supervisor Solis and co-authored by Supervisor Sheila Kuehl, to develop a comprehensive County response to combat high-cost loans and create affordable alternatives.
“While licensed high-cost loans are a legal industry, their products often trap our communities in an unrelenting cycle of debt,” said Supervisor Solis. “The County has a responsibility to protect consumers from predatory lenders. Today’s action ensures that borrowers retain access to affordable emergency loans, while protecting consumers from those who would prey on our most vulnerable low-income residents.”
Today’s motion directs County Departments to develop and scale high-cost loan alternatives (such as microloans or lending circles) with community-based organizations and financial institutions. LA County will begin a multi-year education campaign designed to alert and inform consumers about the risks of entering into high-cost loan agreements, and suggest available alternatives. This culturally-competent and multi-lingual education campaign will be targeted to neighborhoods where high-cost loan vendors are most prominent, with a special focus on reaching women and immigrant borrowers. The LA County Department of Regional Planning will also develop concrete strategies to control impacts caused by high-cost lenders and limit over-concentration of these businesses.
“It’s no secret that high cost loans are called ‘predatory’ because that’s exactly what they are and push low-income families deeper and deeper into debt,” said Supervisor Kuehl. “Families do, however, sometimes need a short-term loan to carry them through a crisis, and this motion takes the first step in creating some alternatives.”
The motion also directs the County Department of Consumer and Business Affairs to develop and implement a partnership plan with community-based organizations to launch a comprehensive outreach education campaign to increase the number of recipients of the Earned Income Tax Credit (EITC) in LA County.
According to the County’s report entitled “Curbing the Effects of High-Cost Loans in Los Angeles County,” high-cost loans exacerbate the financial strain faced by most borrowers and are concentrated in areas with above-average poverty rates. These high-cost loans have deeply negative consequences for LA County’s most vulnerable populations. The use of high-cost products such as payday loans is 63% higher for those earning less than $40,000 annually than for those earning more; 82% higher for those with some college education or less than for those with a four-year degree or more; 103% higher for those who are separated or divorced than for those of all other marital statuses; and 105% higher for African Americans than for other races/ethnicities. Furthermore, communities near high-cost loan storefronts have a higher than average unemployment rate.
While some high-cost lenders advertise their loans as a quick fix for a financial emergency, the reality is that these loans often keep consumers in a debt cycle: the Consumer Financial Protection Bureau indicated that more than 80% of payday loans are either rolled over or followed by another loan. Further impacting their long-term financial health, 7 in 10 borrowers use high-cost loans for regular, recurring expenses such as rent and utilities, according to the PEW Charitable Trust.
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