Californians Take 40% Less Payday Loans During Pandemic: Report
- Total amount borrowed decreased by $ 1.14 billion in 2020
- Decrease part of a national trend correlated with pandemic aid
(Reuters) – California borrowers took 40% fewer payday loans in 2020 from the previous year, the state’s consumer credit regulator said in an annual report on Thursday.
Payday Lender Data Submitted to California Department of Financial Protection show that the aggregate value of loans taken out in 2020 also fell 40% to $ 1.68 billion from $ 2.82 billion the previous year.
Acting DFPI Commissioner Christopher Shultz said economic intervention by states and the federal government during the COVID-19 pandemic, including federal relief checks, extension of unemployment insurance and various types of loan forgiveness, are a likely factor in the decline.
But Shultz said that while the relief has helped keep California consumers afloat financially, the agency is monitoring what is happening “as the pandemic comes out.”
“Some of the economic consequences will be downstream and we need to watch them closely,” he said.
Shultz took over the agency in mid-June when his former commissioner Manuel Perez left for an internal position at the Binance cryptocurrency exchange.
Payday loans are short term loans made to customers who deliver a signed check for the amount. The lender provides the funds minus the fees and agrees to cash the check within one month.
According to the DFPI, about half of California borrowers who used the loans in 2020 were earning less than $ 30,000 per year. The average annual percentage rate on loans was 361%.
Payday lenders in California aren’t the only ones experiencing a downturn in business. Total weekly loans in nine states fell 60% between February 2020 and May 2021, according to data from Veritec Solutions, which manages payday loan data for state governments.
Kiran Sidhu, policy adviser for the Center for Responsible Lending, said Thursday that the correlation between pandemic relief and payday loans illustrates how low-income borrowers are using loans as a financial stopgap.
“If we paid people a universal basic income, or paid them better wages, they probably wouldn’t need these products,” she said.
The DFPI report also showed that 2020 saw a 27.7% drop in the number of payday lenders in the state, leaving 1,121 licensed locations.
Ed D’Alessio, executive director of consumer finance business group INFiN, said in a statement Thursday that 2020 was “a tough time from a business perspective.”
He attributed the decline in small dollar loans to consumers staying at home, paying off debts and receiving government assistance.
For those who have used consumer credit products, “we were proud to be there during this time of need,” he said.