- Total borrowing decreased by $ 1.14 billion in 2020
- Decline in proportion of national trend associated with pandemic aid
The above company and law firm names are automatically generated based on the text of the article. We are improving this feature by continuing to test and develop the beta. We welcome feedback that you can leave using the feedback tab on the right side of the page.
(Reuters) – Borrowers in California took 40% fewer payday loans in 2020 from a year earlier, the state’s consumer finance regulator said in an annual report Thursday.
Payday lender data submitted to the California Department of Financial Protection showed that the total cost of loans taken out in 2020 also fell by 40%, to $ 1.68 billion from $ 2.82 billion a year earlier.
DFPI Acting Commissioner Christopher Schultz said state and federal economic interventions during the COVID-19 pandemic, including federal aid checks, extended unemployment insurance, and various loan waiver options, are likely to be a factor in the decline.
But Schultz said that while the aid has helped California consumers stay financially afloat, the agency is watching what happens “as we emerge from the pandemic.”
“Some of the economic impacts will be downstream and we need to keep a close eye on this,” he said.
Schultz took over the agency in mid-June when his former commissioner, Manuel Perez, retired to an internal position on the Binance cryptocurrency exchange.
Payday loans are short-term, small dollar loans that are issued to clients who hand over a signed check for the amount. The lender provides the funds minus the commission and agrees to cash the check within a month.
According to the DFPI, about half of the borrowers in California who used loans in 2020 earned less than $ 30,000 a year. The average annual interest rate on loans was 361%.
Payday lenders in California are not alone in business downturns. Total weekly lending across nine states fell 60% between February 2020 and May 2021, according to Veritec Solutions, which manages payday lending data for state governments.
Kiran Sidhu, the policy board of the Center for Responsible Lending, said Thursday that the correlation between pandemic relief and payday loans shows how low-income borrowers are using loans as a temporary stopgap.
“If we were to pay people a universal basic income or pay them higher wages, they probably wouldn’t need these products,” she said.
The DFPI report also showed that the number of payroll lenders in the state fell 27.7% in 2020, leaving 1,121 licensed positions.
Ed D’Alessio, executive director of consumer finance trade group INFiN, said on Thursday that 2020 was “a tough time in terms of business.”
He attributed the slump in small dollar loans to consumers who stayed home, paid off debts and received government aid.
For those who have used consumer finance products, “we were proud to be there during this difficult time,” he said.