Testimony from California Reinvestment Coalition on Consumer Loans

Editor’s note: The CFPB, a federal agency, has proposed new rules for payday, car title, and high-cost installment lenders.

BUT, they need to hear from consumers- that means you! We have an easy-to-use page where you can weigh in- it only takes a minute and will help bring about important consumer protections with these loans. Please share a line or two in the comments box about why you care about this issue and want to see strong federal reforms.

PS: You do NOT have to be a payday, car title, or installment borrower to sign the petition.


On January 11th, the California Assembly Committee on Banking and Finance held a hearing, “Small Dollar Consumer Lending in California.”

Paulina Gonzalez’ testimony is featured in its entirety below.  After reading her testimony, you may also be interested in seeing CRC’s other resources on payday lending, linked below.  Want to join the conversation and share your experience? Visit #StopTheDebtTrap on Twitter and join the conversation!

Paulina Gonzalez Testimony on Small Dollar Consumer Lending

I am the Executive Director of the California Reinvestment Coalition.  We are a statewide financial and economic just coalition with over 300 organizational members across the state.  I know firsthand the needs of our communities, not only from the work that I do and the communities that CRC represents, but I know this because this is the community that I come from.  I grew up in working class south Montebello, in an immigrant family where we struggled to make ends meet.  But luckily for us, we never had the option of taking out a payday or installment loan that would have left us in a worse situation.

CRC’s members work on the front lines of California’s low income communities and communities of color.  Our members are affordable housing developers, CDFI small business lenders, asset building organizations, and tenant rights organizations.

Our membership serves the constituencies that are the target of the aggressive marketing and outreach efforts of high cost lenders, and they are located in low income communities where payday loans and installment loan store fronts are heavily concentrated.  They serve the constituency that therefore often fall prey to these high cost products.

The lobbyists and corporate executives of the predatory lending industry say that they know our community needs and that they our providing a service with their products by helping families during an emergency when they can’t pay their rent or when their car breaks down.  They say that they provide a last ditch option when our communities have no other option.

But really the so called service they are offering is analogous to offering a starving man poisoned food.

These products leave families in a worse situation than when they started; they leave families thousands, if not tens of thousands of dollars in debt paying 100-500% above the principle over the term of a loan.

CRC agrees with the general goal and principal of expanding access to credit for our communities, particularly for under-served populations, however we want to ensure that the credit that is being offered is fair, affordable, responsible credit, not high-cost predatory loans that trap borrowers in a cycle of debt.

We do not believe that high cost credit, in other words, that poisoned food, is the solution for our communities.

We are concerned about the weak legislative and regulatory framework governing payday lending below $300 and car title and installment lending over $2,500.  The failure to regulate this lending space at each end of the lending spectrum allows for lenders to conduct high cost predatory lending with impunity in this space.

At one end of the spectrum, in the under $300 range you have unregulated interest rates and APRs as high as 450% on these loans.  In addition, you have a business model that relies on repeat borrowing.  The CFPB just last year took an enforcement action against ACE Cash Express, one of the largest payday lenders in the country. They found that ACE used illegal debt collection tactics – false threats of lawsuits or criminal prosecution – to pressure overdue borrowers into taking out additional loans they could not afford.  This is the profit making model these lenders rely on, as evidenced by their employee training manual.

On the other end of the spectrum, in the above $2,500 range, the business model is based on triple digit interest rates that force consumers into loans that can take a decade to pay off and can cost tens of thousands of dollars above the original loan cost.

Imagine paying $30,000 on a $5,000 loan.  Does that sound like a service to you? Or does that sound like poisoned food?

Consumers in the middle lending space, that encompasses the pilot program, have the most protections.  There is a usury cap, some underwriting, and there is reporting to credit agencies.

What we should be discussing is strengthening the middle lending space, extending the protections of the pilot to more people by regulating the $300 payday lending space and the above $2,500 lending space.

Our  current concern with each end of the lending spectrum is that lenders are offering these products without assessing the consumer’s ability to repay, thereby forcing consumers to choose between re-borrowing, defaulting, or falling behind on other obligations, we are also concerned about certain payment collection practices that can subject consumers to substantial fees and increase risk of bank account closure.

Consumers need better protections for consumer loans, across the board, from payday to car title to installment loans, such as:

  • underwriting requirements that take into account income and expenses to ensure borrowers have the ability to repay the loan
  • interest rate restrictions and fee caps of 36% APR or less
  • protections against expensive, long-term debt such as limits on re-borrowing and refinancing

We’re encouraged by the forthcoming CFPB rule and we are working hard to win strong reforms and establish a national floor for consumer protections, we believe it’s premature to change the CFLL, given the impending changes in federal regulatory requirements.

If the legislature is going to proceed anyway, the focus should be on regulating each end of the lending spectrum and leveling the lending playing field to protect consumers from high cost predatory loans and therefore expanding access to responsible affordable credit.

CRC resources on predatory payday, car title, and installment lending

Share Your Story about payday, high cost installment, or car title lending- It only takes 3-5 minutes. By sharing your experience, you can help take a stand against predatory lending and help the CFPB understand why consumers need strong rules to limit predatory loans.

Newspapers around the country are weighing in!  Check out this extensive compilation of 109 editorials (and counting!) against the debt traps created by payday and other high cost loans: Editorials Against Payday Lending

Payday Lender Hall of Shame: If you thought payday lenders are here to help, read this shocking expose of their worst practices.  Some truly shocking behavior!

North American Title Loans Repossess Car from Injured Consumer.  Watch this PBS NewsHour segment about TJ McLaughlin, whose car was repossessed after he couldn’t make payments because of a health problem.


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