L.A. County looks for alternatives to ‘payday’ and other high-cost lenders

LOS ANGELES – The Los Angeles County Board of Supervisors voted Tuesday to explore alternatives to high-interest loans marketed to low-income consumers with few financial options.

Supervisor Hilda Solis authored the unanimously approved motion that calls for staffers to work with financial institutions and community-based organizations to develop alternatives and create a campaign to better educate consumers.

“While licensed high-cost loans are a legal industry, their products often trap our communities in an unrelenting cycle of debt,” Solis said. “The county has a responsibility to protect consumers from predatory lenders. [This] action ensures that borrowers retain access to affordable emergency loans, while protecting consumers from those who would prey on our most vulnerable low-income residents.”

So-called “payday” loans are typically cash advances offered to consumers struggling to cover expenses in between paychecks. Fees in California are limited to 15 percent of the amount borrowed, for example, a $15 fee for a $100 loan. However, if the borrower is required to pay back that loan in two weeks, which is common, the annualized interest rate isn’t 15 percent, but nearly 400 percent.

Solis cited recent research by the California Department of Business Oversight, which found that more than 60 percent of payday loan storefronts are in areas with higher-than-average family poverty rates.

Seven in 10 borrowers use high-cost loans to pay monthly expenses like rent and utilities, the Pew Charitable Trust found.

More than 80 percent of payday loans are rolled over or followed by another loan, according to the Consumer Financial Protection Bureau, though California law prohibits a second payday loan when one remains unpaid.

Alternatives could include microloans or lending circles.

Solis and co-author Supervisor Sheila Kuehl said financial literacy is part of the solution to reducing debt burdens, which includes helping eligible residents file for the federal Earned Income Tax Credit and letting them know that free tax preparation services are available.

Supervisor Mark Ridley-Thomas said part of the county’s work would be to “sort out (the lenders) who are behaving responsibly against those who are not,” and noted that some “who think they are behaving responsibly may need to evaluate the impact of what it is that they are in fact doing.”

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