A growing number of cash-strapped California seniors are turning to high-interest payday loans, according to a report by the California Department of Business Oversight.
Sometimes called a “cash advance” or “deferred deposit transaction,” a payday loan is a short-term loan where someone borrows a small amount of money at a very high interest rate. The borrower typically writes a post-dated check for the amount they wish to borrow, plus a fee in exchange for the money.
The report finds that the average annual percentage rate charged for payday loans last year was 372%, up from an average of 366% in 2015. The average APR on credit cards, on the other hand, varies by approximately 12% to about 30%. .
Nancy McPherson, state director of Pasadena-based AARP California, said the payday lending industry adds another challenge to Californians who are already struggling with high housing costs, high gas costs, high taxes and a myriad of other expenses.
“A lot of people in California are struggling because of the high cost of housing,” she said. “We understand that people need access to capital – that’s obvious. But it shouldn’t be done that way. It worsens a person’s financial situation by charging such high fees. It is a predatory loan.
Seniors, many of whom live on fixed incomes, are now the largest group of payday loan borrowers in California, according to the report. Californians aged 62 and over made up 23.4% of the 2016 total, and took out nearly 2.7 million loans, almost three times the number in the previous year.
The average amount of payday loans borrowed in 2016 was $ 251 compared to $ 237 the previous year and the average length of a transaction remained unchanged at 17 days. Under California law, the maximum amount a consumer can borrow through a payday loan is $ 300.
Simple and accessible
Jamie Fulmer, spokesperson for Advance America, Cash Advance Centers Inc. in Spartanburg, North Carolina, notes that millions of Californians live from paycheck to paycheck. Payday loans, he said, meet a definite need.
“Last year nearly 2 million people used regulated payday advances to address financial challenges,” Fulmer said via email. “Consumers choose our service because it is simple, transparent and accessible. Additionally, they recognize that it can be less expensive than unlicensed bank overdraft programs or online lenders, and is a healthy alternative to the consequences of neglecting bills and other financial obligations.
Other figures from the DBO report show fewer payday loans were made in 2016. Loans collectively totaled over $ 3.1 billion last year, up from over $ 4.1 billion in 2015. And the total number of transactions fell 6.2% to a nine-year low at 11.5 million, from 12.3 million in 2015.
Yet the elderly seem to rely heavily on these cash advances.
A vulnerable demography
Liana Molina, director of community engagement at the California Reinvestment Coalition, a group that seeks to ensure fair lending practices and accountability in the financial sector, wonders if the industry is targeting seniors.
“The BOD report is quite alarming because a number of seniors are on fixed incomes and many of them are low income,” she said. “These loans are easy to contract but very difficult to withdraw. If someone puts their car as collateral, it’s like taking them hostage. They will have to keep paying as much as they can because they need their car. It is an asset stripping industry.
Fifty-two percent of last year’s payday loan clients earned annual incomes of $ 30,000 or less, according to the report.
Legislation in progress
An effort is underway to reduce high borrowing costs in California.
Senate Bill 318, which created the Pilot Program for Increased Access to Responsible Small Loans, came into effect in 2014. It is designed to increase the availability of small installment loans ranging from at least $ 300 to less than $ 2,500 while keeping interest rates under control. . The annual percentage rates for these loans are capped at slightly higher amounts than the California Lender Act previously allowed.
“In the upper range, the rate, say a $ 500 loan, would be around 75-77%,” Molina said. “But with larger loans, it would be around 40 percent.”
A 2017 AARP study of California adults between the ages of 36 and 70 shows that older people aren’t the only ones struggling to live in California. One in four respondents believe that they “just get away with it” or find it difficult to get by financially. And one in five say they wouldn’t be able to afford an emergency expense of $ 1,000 or more.
Their main concerns when it comes to saving for retirement are running out of money after paying bills, housing expenses, their children’s education, health insurance, and large debts to repay.
