Payday lenders concentrated in poor ZIP codes
A new study that found payday lenders are concentrated in poorer areas of California is fueling calls from consumer advocates for tighter regulations on the state’s 2,000 short-term loan stores.
More than 60 percent of the state’s payday stores are located in ZIP codes with family poverty rates above the state average, according to an analysis by the state Department of Business Oversight, which regulates the industry. The study, issued this month, matched 2014 Census Bureau data with the location of payday stores in California as of March.
In Sonoma County, more than 40 percent of the area’s 17 payday lending storefronts were located in three Santa Rosa ZIP codes where poverty rates are higher than the county average, according to the department.
The agency will use the findings as it considers regulatory changes that, if implemented, would prevent borrowers from taking out more than one payday loan at a time. To assist with that effort, the department may also call for a database that would track payday lending transactions in real time.
Payday lenders made 12.3 million loans in California in 2015 totaling $4.2 billion, state regulators reported last July. Borrowers took out 6.5 loans, on average, during the year.
The pattern of repeat loans, combined with the concentration of payday lenders in poor communities, is significant, department spokesman Tom Dresslar said.
“When you combine the fact that repeat customers are a significant part of the business model in California with the fact that the storefronts are concentrated in areas of high poverty, then you have an evidentiary basis — at least the beginnings of one — to seriously consider limiting customers to one loan with any (payday) licensee, as opposed to one loan with the same licensee,” Dresslar said.
Payday loans are short-term cash advances provided to borrowers in exchange for a personal check.
The borrower’s check, which includes an agreed-upon fee, is cashed by the lender in 31 days or less.
State law limits the lender’s fee to up to 15 percent of the borrower’s check, which is itself limited to no more than $300.
Consumer advocacy groups cast payday lenders as predatory, arguing their steep interest rates often trap consumers in debt. And concentrating payday stores in poor ZIP codes makes it easy for people to take out one expensive loan to pay off another, said Liana Molina, director of community engagement at the San Francisco-based California Reinvestment Coalition.
“I’ve literally sat down with people and done some back of the envelope calculations, and been there at that heartbreaking moment of, ‘Oh my god, I’ve spent $5,000 in fees?’ ” Molina said. “That’s a car. That’s money to pay for some classes at the community college. That’s real money. To realize that you’ve just completely thrown it away, it’s really difficult.”
Molina supported limiting payday loans to one per customer at a time.
The study also found that, among ZIP codes with six or more payday lending stores, the share of black and Latino residents exceeded their share of the overall state population. Graciela Aponte-Diaz, director of California policy for the Center for Responsible Lending, said that supported the notion that payday lenders were targeting those communities.