2015 Payday Loan Statistics for California

Editor’s note: The Consumer Financial Protection Bureau is finalizing new rules for payday, car title, and high-cost installment loans. They want to hear from YOU about your experiences and recommendations for the loans. Please take two minutes to provide your insights here. 

California Payday Lending Statistics

1) Total Number of loans:  Approximately 12.3 million loans were made in California in 2015 and the aggregate dollar amount of the loans was about $4.2 billion.

2) Average number of loans and average APRs: The average number of loans per customer was 6.5, paying an average APR of 366% (average APR increased 5% from 2014).[1]

3) Repeat borrowers and “churning” of loans: Contrary to loans being advertised as a “one time fix for emergencies” the number of Californians who obtained 10 payday loans (462,334) was far greater than the number who only had one loan (323,870). Subsequent transactions by the same borrower accounted for 76% of the total number of loans made in 2015 with 47% of subsequent loans made the same day a previous loan transaction was paid off and another 23% happening within 1-7 days.

CA DBO new report number of transactions

Graph is from CA Dept. of Business Oversight Report on 2015 Payday Lending Statistics

4) Churning profits: 64% of fees in 2015 ($53.53 million) – came from customers who had seven or more transactions during the year.

Fees collected

Graph is from CA Dept. of Business Oversight Report on 2015 Payday Lending Statistics 

5) Repossessions: 16,989 car title loans resulted in the consumer’s car being repossessed in 2015.[2] At the national level, the CFPB has found that 1 in 5 car title loans ultimately results in a repossession.[3]

6) Fees: California payday loan consumers pay over $507 million annually in payday loans and over $239 million in car title loans.  This ranks California in the #2 spot for highest amount of fees paid for car title and payday loans.[4]

7 Economic drain: Payday lending is an estimated $135 million net drain on California’s economy every year and subtracts 1,975 jobs.[5]

Customers age

Graph is from CA Dept. of Business Oversight Report on 2015 Payday Lending Statistics on ages 

The California Reinvestment Coalition builds an inclusive and fair economy that meets the needs of communities of color and low-income communities by ensuring that banks and other corporations invest and conduct business in our communities in a just and equitable manner.

You might also be interested in these payday lending posts:

Editorials Against Payday Lenders (As of July 2016, there’s been more than 150 editorials written from around the country about the financial harm caused by these lenders).

Payday Lender Hall of Shame This industry is known for spectacularly shady practices against its consumers. We’ve compiled some of the worst.

8 Reasons Not to Get An Online Payday Loan Is that really a lender’s website you’re on?  Or is it a broker who will re-sell your sensitive information repeatedly?

Data Sources:

[1] CA Dept. of Business Oversight press release, available at: http://www.dbo.ca.gov/Press/press_releases/2016/2016%20CDDTL%20Annual%20Report%20and%20Industry%20Survey%20Press%20Release%2007-06-16.pdf

[2] CA Dept. of Business Oversight 2015 CFLL annual report, available at: http://www.dbo.ca.gov/Licensees/Finance_Lenders/pdf/2015_CFLL_Aggregated_Annual_Report_FINAL.pdf

[3] Consumer Financial Protection Bureau press release, available at: http://www.consumerfinance.gov/about-us/newsroom/cfpb-finds-one-five-auto-title-loan-borrowers-have-vehicle-seized-failing-repay-debt/

[4] Center for Responsible Lending report, available at: http://responsiblelending.org/sites/default/files/nodes/files/research-publication/crl_statebystate_fee_drain_may2016_0.pdf

[5] Insight Center for Community Economic Development report, available at: http://ww1.insightcced.org/uploads/assets/Net%20Economic%20Impact%20of%20Payday%20Lending.pdf

10 Things you may not know about payday loans and the companies that make them

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.

1. Payday lenders would not survive without financing from banks and Wall Street. Adam Rust, Director of Research at Reinvestment Partners, and author of the blog Bank Talk, recently highlighted this in his post: “High-Cost Consumer Finance Companies Extol the Benefit.” Rust uses statements from companies like National Money Mart and First Cash Financial to illustrate that Wall Street plays an important role in funding services like payday lenders and pawn shops. Read more: “High-Cost Consumer Finance Companies Extol the Benefits” by Adam Rust, Bank Talk Blog, July 30, 2013.

2. Payday lenders LOVE people with Social Security! Why? Because Social Security is a regular payment, so repayment of their loan is virtually guaranteed. According to the Detroit Free Press, Patricia Guy, A 62 year old in Detroit, who receives Social Security, took a loan from Western Sky after seeing an ad on TV that said this it was a good way to pay off payday loans (she had two at the time and thought she could use the new loan from Western Sky to pay them off).

Ms. Guy is paying 139.13% interest for this loan. In other words, to borrow $2,525, she will pay $11,412.12 in interest over the course of four years. The Michigan State Department of Insurance and Financial Services is trying to kick Western Sky out of the state, with a hearing set for September 24th. Read more here: “Debt can soar for users of quick-fix loans” Susan Tompor, Detroit Free Press, August 12, 2013.

3. Payday lenders exploit loopholes. In Ohio, they have exploited so many loopholes in a 2008 state law that the Toledo Blade recently editorialized against them, suggesting “Lawmakers must close the loopholes to make the Short-Term Lending Act work as it was designed to, including a ban on auto title loans secured by a consumer’s car. Essentially, any payday-style loan must be subject to the 28 percent cap.” Ed Mierkwinski recently captured the dynamic of payday lenders trying to use loopholes to get around predatory lending laws: “Playing ‘Whack-a-Mole’ With Predatory Lenders” (US News and World Report , Opinion, August 13, 2013) Read the Toledo Blade’s editorial here: “Swimming with sharksToledo Blade. August 12, 2013.

4. Federal regulators are starting to pay attention to online payday lenders: According to an article by the Center for Public Integrity, six different federal agencies are now investigating online payday lenders, and the Justice Department has already subpoenaed more than 50 financial companies, “mainly banks and the payment processors that connect consumers to online lenders and other companies that Justice thinks may be operating fraudulently.” Six federal agencies are investigating online payday lenders” Daniel Wagner, Center for Public Integrity, August 8, 2013

5. They make payday loans in the United Kingdom, and it’s been the focus of government officials and advocates all summer:

Some payday lenders decided they would rather close shop than follow the law. During a “Payday Lending Review” by the Office of Fair Trading in the United Kingdom, the regulator identified areas of noncompliance with 50 payday lenders. Of these 50 lenders, 13 of them decided to stop doing business instead of complying with the law. Read more: OFT Payday lending compliance review 

One payday lender in the UK recently tried collecting money from people who never had loans with them. Unfortunately for them, one of the people they sent a collection email to was a banking law expert in the United Kingdom. He received a collection email from “Quick Quid,” (a payday lender) who eventually acknowledged (after wasting his time) that he never owed them a debt. In response, a British Prime Minister accused Quick Quid of “dodgy dealings.” Read more here: “Payday loan firm Quick Quid demands cash from Ancoats bank expert who had never borrowed any” Jennifer Williams, Manchester Evening News, August 12, 2013.

6. State Attorneys General don’t like payday lenders. In July, Georgia’s Attorney General sued CashCall Inc, and Western Sky Financial, LLC (Western Sky), demanding that they stop breaking Georgia state law, specifically, the Pay Day Lending Act which prohibits offering these types of loans, including online. Georgia consumers have complained that CashCall representatives have “harassed them with repeated telephone calls, obscene and abusive language, threats of wage garnishment or other legal action, and even going so far as to call consumers’ employers to threaten wage garnishment.” Read more: Attorney General Olens Files Suit to Protect Georgia Consumers from Illegal Payday Lenders 

Similar to Georgia, New York’s Attorney General, Eric T. Schneiderman, is also suing Western Sky Financial. He is suing them for violating New York usury laws that limit interest rates at 25 percent. According to the New York Times, the AG believes that Western Sky has made 17,970 loans in the past three years, with interest and fees totaling almost $185 million. New York is one of at least 9 states going after lenders with ties to American Indian tribes. Read more: “Suit Accuses Online Lender of Violating New York Rate Caps” by Jessica Silver-Greenberg, DealBook, New York Times. August 12, 2013.

7. Cities across the U.S. are passing laws to stop payday lenders. The California Reinvestment Coalition is proud of our work in California to restrict harmful payday lending in Sacramento, San Francisco, Oakland, Oceanside, San Diego, and more recently in San Jose, as part of the Coalition Against Payday Predators (CAPP). Currently, we are excited to work with CAPP on local ordinance campaigns in Gilroy and Sunnyvale, and to support our allies and partners in the cities of Fresno and Long Beach.

We are also encouraged to see cities in other states taking on the payday loan industry-

Texas: On August 2, 2013, the Town of Flower Mound became the 7th city in Texas (including Austin, Balcones Heights, Dallas, Denton, El Paso, and San Antonio) to adopt an anti-payday lending ordinance. The Texas Municipal League also started a payday lending clearinghouse with helpful information, including example ordinances and lawsuit pleadings for other city leaders who are considering legislation against payday lenders.

Iowa: Cedar Rapids was the sixth city in the state to enact stronger regulations against payday lending. According to the Associated Press (“Iowa cities take on payday lenders with zoning laws” June 17, 2013), Ames, Clive, Des Moines, Iowa City, and West Des Moines have already enacted legislation aimed at limiting payday lenders.

Read More: Texas Municipal League Payday Lending Clearinghouse  
Read More: “Iowa cities take on payday lenders with zoning laws” by Associated Press. June 17, 2013.

8. There’s nothing more unpatriotic than taking financial advantage of soldiers, but it still happens. Twenty-three senators and 53 members of the US House of Representatives recently weighed in on this topic, asking the Department of Defense to close a loophole in the Military Lending Act that has allowed lenders to offer high-interest, triple-digit interest rate loans to soldiers. Read more: “Congress to Pentagon: Save the Troops From Predatory Lenders” by Erika Eichelberger, Mother Jones, August 9, 2013.

9. Payday lenders have redefined “sleazy campaign tactics.” Propublica’s recent expose: “The Payday Playbook: How High Cost Lenders Fight to Stay Legal” shines a bright light on industry tactics recently used to stop a proposed law in Missouri. Payday lenders used secret funds to threaten and intimidate churches, harass community organizers who were trying to get petitions for a ballot initiative, filed decoy laws to confuse voters, and even hired a former NFL player to be their spokesperson. All of these tactics were used to stop a law that would have capped interest rates at a reasonable 36%. Read more: “The Payday Playbook: How High Cost Lenders Fight to Stay Legal” by Paul Kiel, Propublica, August 2, 2013.

10. Payday loans are also offered by banks.  Banks also make short-term, small dollar amount, high-interest loans, but they try and dress up the high interest rates on these loans by using language such as “direct deposit advance” (Wells Fargo), or “Checking account advance” (US Bank), or “Ready Advance” (Regions Banks).

With a few clicks of the mouse, customers can obtain loans with sky-high interest rates. At a recent Senate hearing about these bank payday loans, a lobbyist for the banks struggled to explain the difference in storefront payday loans and the payday loans made by banks to Senator Elizabeth Warren (D-MA). Senator Bill Nelson (D-FL), Chair of the Senate Select Committee on Aging, (committee which held the hearing), also pointed out that making these types of loans is virtually risk-free for the banks since the customer has to have a source of income to qualify for the loan.

Annette Smith, a senior from California, testified at the hearing about her experience trying to pay back a Wells Fargo direct deposit advance on her Social Security income of roughly $1,200 a month. Read CRC’s perspective on the hearing here. “Hearing Focuses on Direct Deposit Advances, are They Different than Payday Loans?

A coalition of groups in Illinois, Missouri, and Iowa, recently started a campaign against Regions Bank for offering its version of a payday loan, known as a “Ready Advance” loan. George Goehl, executive director of National People’s Action explained that groups are organizing against bank payday loans because “Banks should help people build wealth, not strip it away.” Read more here: “Groups call on bank to stop offering ‘predatory’ payday loans” Jessica M. Karmasek, Legal Newsline Legal Journal. August 12, 2013.

Are you a Californian who has used a payday loan and would like to share your story? Do you want to get involved in local efforts to restrict payday lending in our communities? If so, please contact Liana Molina, CRC’s Payday Campaign Organizer: Liana@calreinvest.org  or 415-864-3980.

To stay up to date on financial justice issues in California, especially as they relate to low income communities, and communities of color, you can follow the California Reinvestment Coalition on our Facebook page, via Twitter, watch our movies on our YouTube Channel, sign up to receive our newsletter and action alerts, and of course, visit our website.

Hearing Focuses on Direct Deposit Advances, Are They Different Than Payday Loans?

Earlier this week, the Senate Select Committee on Aging focused on direct deposit loans that are made by six banks in the U.S.  Both Wells Fargo and US Bank offer these loans in California.  The hearing was titled “Payday Loans: Short-term Solution or Long-term Problem?” To watch it online, visit the Committee’s website. 

Annette Smith, a 69-year old senior from Rocklin, California testified about her experience with Wells Fargo Direct Deposit advance loans, and the nearly $3,000 in fees she paid for the loans over a five-year period.

Direct Deposit Loan Hearing

ABC News (Congress Shines Spotlight on the Hazards of Payday Loans) reported that Smith asked the committee: “Please do something, whatever you can, to stop banks from doing this to other seniors across the country.” You can read her full testimony here.

Not surprisingly, the witnesses representing banks who make direct deposit advance loans and the payday lenders both appeared to be on the defensive throughout the hearing.  The witness testifying on behalf of the payday lenders suggested that the industry needs to do better underwriting to make sure people don’t caught in cycles, provide installment loans that are truly installment loans (for people who can’t pay back their loans in two weeks), register ALL companies making these loans- storefront or online, and create a code of business practices.

Senator Collins (R-ME) remarked that the conciliatory tone seemed far different than the comments the lobbyists had submitted on a proposal by the FDIC and OCC to re-vamp laws on the direct deposit loans.  CRC, along with 62 other community groups, wrote a letter to regulators suggesting that regulations around the loans needed to be strengthened to better protect customers, including conducting actual underwriting for the loan, increasing transparency about the cost of the loan (by representing the cost as an APR instead of as fees) and ensuring that people didn’t get caught in cycles of debt.  You can read the policy recommendations here.

Direct Deposit Loans

Another witness struggled to explain the difference between a payday loan and a direct deposit advance to Senator Elizabeth Warren (D-MA).

Direct Deposit Loans

Upon questioning by Senator Donnelly (D-IN), the bank lobbyists also struggled to explain why charging 200% interest is an acceptable practice, and instead kept trying to represent the cost of the loan as fees, instead of interest.

The CreditUnionTimes (Seniors Fastest-Growing Segment of Payday Borrowers, Senate Told) highlighted Rebecca Bornè’s testimony about research the Center for Responsible Lending has conducted on these loans, finding that in Florida and California, approximately one in five payday borrowers is aged 55 or older, and that on average, payday lenders take 33% of a borrower’s next Social Security check to repay a loan.

According to Propublica’s account (Senator Presses Consumer Bureau on Installment Lender World Finance), Senator Ron Wyden (D-OR) pressed the Consumer Financial Protection Bureau to do more to investigate companies like World Finance. Propublica focused on this company in an earlier article in May: “The 182 Percent Loan: How Installment Lenders Put Borrowers in a World of Hurt.”

Direct Deposit Loans

Senator Bill Nelson (D-FL), the Chair of the Committee, highlighted the relatively low risk involved in making these loans when the customer’s income is from Social Security. Senator Nelson remarked, “As long as there’s a Social Security Administration, that money will be coming in.”

A report earlier this spring by the Center for Responsible Lending (Triple-Digit Danger: Bank Payday Lending Persists) found that 25% of customers of direct deposit advance loans are Social Security recipients).

When a bank lobbyist said that “We don’t want unhappy customers,” Nelson replied “Right now you’ve got unhappy customers and unhappy senators who represent those customers.”

To learn more about payday lending in California, New York, North Carolina, and Illinois, read the recently released report “The Case for Banning Payday Lending: Snapshots from Four Key States” that was written by the California Reinvestment Coalition, the New Economy Project, the Woodstock Institute, and Reinvestment partners.