California Reinvestment Coalition Goes to Washington

Last week, members of the California Reinvestment Coalition traveled to Washington, DC, for the annual National Community Reinvestment Coalition conference.  The theme this year was “Creating a Just Economy.”

Keynote speakers during the conference included Federal Reserve Chair Janet Yellen, CFPB Director Richard Cordray, Representative Maxine Waters who is Ranking Member of the House Financial Services Committee, Comptroller Thomas Curry, Senator Sherrod Brown who is Ranking Member of the Senate Banking Committee, Mark Morial, CEO of the National Urban League, and John Taylor, president and CEO of NCRC.

There were a number of sessions focused on reinvestment, affordable housing, small business lending, home ownership, gentrification, economic development, CDFIs, community health benefit agreements, fintech, rural development, fair housing, the racial wealth gap, the Community Reinvestment Act, redlining, and more, including a session entitled “Defending the CFPB” that Paulina Gonzalez, executive director of CRC, moderated.

In addition to attending the conference, CRC members also met with members of the California Congressional delegation and with bank regulators and their staff as well.  During the meetings, CRC members shared what they are seeing from their work in communities, specifically around issues related to small business lending, affordable housing and economic development.

This slideshow requires JavaScript.

The president’s so-called “skinny budget” proposal was one of several topics covered at the meetings, and more background about the additional issues is included below.

Program/Department

Budget Proposal Impact on California

HUD Budget 

Eliminates CDBG, reductions for key programs serving renters Loss of $357 million in CDBG funds for CA cities;

$130 million in HOME funds for new affordable housing; Thousands of tenants to lose rental assistance vouchers;

More costs for Medicaid as seniors move to nursing homes w/o Meals on Wheels;

Increased homelessness;

CDFI Fund

Eliminated

Fewer loans, less support for Small Biz Owners. There are 86 CDFIs in CA that made 39,000+ loans in FY 2016.

Legal Services Corporation

Eliminated

11 CA orgs. receive funding through LSC.

Small Business Administration

Prime program defunded; Microloan program frozen Less financing available for CA small businesses.

NeighborWorks

Eliminated

Will harm efforts at building assets, including for 1st time homebuyers, also negative impacts for affordable housing.
AmeriCorps Eliminated

Work on tax returns, literacy, emergency response, health, and economic development.

 

Community Reinvestment Act

This year, CRA celebrates its 40th anniversary. Because of the CRA, financial institutions are helping to meet important community credit needs and building consumer and community wealth, through small business lending, mortgage lending, affordable housing finance, community development activity and bank branch and account access.

  • California Reinvestment Coalition members and other community groups have recently negotiated win-win community commitments with a number of banks, including City National, Bank of Hope, Cathay Bank and Mechanics Bank.
  • But bank regulators need to be more rigorous and timely in their CRA and Fair Lending examinations of banks. Wells Fargo had not had a CRA rating made public in 9 years, and several banks, such as BancorpSouth and Evans Bank that received Satisfactory CRA ratings were later sued for redlining.
  • Regulators should encourage banks to develop Community Benefit Plan agreements with local community groups, and incorporate these agreements into any bank merger approval and subsequent CRA exams.
  • Regulators should also provide CRA downgrades to institutions that engage in discriminatory, unfair, or deceptive practices, or that finance the direct or indirect displacement of low and moderate income people and communities of color, or that finance lenders who make predatory loans in these communities. Banks must diversify management and staff, and develop robust supplier diversity programs.


Rural Communities

Rural communities in California face unique and significant challenges. Banks are well placed to help local communities develop and grow through home mortgage and small business lending, affordable housing investments and low cost accounts.

  • But nonprofit groups and even some banks report that banks only lend and invest in geographic areas that are subject to “full scope” regulatory review (via CRA exams),  that tend to focus on larger, urban areas, especially for the largest banks.
  • Bank regulators should expand the number of full scope areas for banks that are among the biggest depositories and lenders in smaller, rural communities. Branch closings, especially in rural areas, are also effectively limiting access to banking for consumers.

Protect CFPB

The Dodd Frank Act and the creation of the Consumer Financial Protection Bureau are the most effective and publicly popular responses to the financial crisis.

  • The CFPB has secured over $12 billion in consumer relief, more than all of the other, relevant federal agencies combined.
  • The CFPB developed common sense rules that brought order and transparency to mortgages (Qualified Mortgage and QRM rules, home loan modifications (servicing rules, including successors in interest protections), and the collection of home loan data (HMDA rule).
  • Additionally, CFPB enforcement actions have protected consumers and communities from unlawful lending discrimination and unfair and deceptive practices.
  • Importantly, over 1 million consumers (including over 118,000 Californians) have already taken advantage of the CFPB’s user-friendly consumer complaint database to file complaints -some telling their stories – to seek relief but also to inform other consumers and CFPB enforcement officers about problematic practices and actors.
  • The CFPB’s Director, structure and authority must be vigorously protected.
  • Important CFPB rules on payday lending, prepaid cards, mandatory arbitration, debt collection and small business loan data must be finalized and protected from repeal.
  • We also support the CFPB’s work on issues that have important impacts on consumers, ranging from student loans to credit reporting agencies to financing for cars.

Small Business Lending

  • Small business lending has increased since Dodd Frank Act, not decreased as some Dodd Frank critics have suggested. But small business loans are still less available in LMI neighborhoods and neighborhoods of color
  • And many small business owners looking for credit from banks are relegated to higher cost and variable rate credit cards, not term loans.
  • 95% of the small business loans in CA from JPMorgan Chase Bank are credit card loans. While credit cards serve a purpose, they can come with higher costs, variable rates and are not well suited for the longer term capital needs that many businesses have.
  • Dodd Frank Section 1071 data would bring much needed transparency into who is receiving small business loans- and who is not. In the same way that HMDA data created greater transparency in the home lending market, 1071 small business data will shed light on small business lending trends, highlight disparities, and likely lead to increased lending.
  • Fintech, online, and marketplace lenders can present opportunity, but some are clearly also creating harm. CDFIs and community lenders are spending precious capital and staff time refinancing small business owners out of predatory fintech loans and merchant cash advances.
  • An Opportunity Fund analysis of 150 “alternative loans” found an average APR of 94%, and among Hispanic borrowers, the average monthly payment was more than 400% of take-home pay.
  • Advocates are concerned about a weakening of consumer protection under any OCC national fintech charter which will lead to preemption of state laws, and are concerned that the OCC has not shown itself to be a strong bank regulator (see, Wells Fargo).
  • We join Congressman Cleaver in raising concerns that fintech lenders are violating fair lending laws by not making good credit available to neighborhoods of color, that fintech algorithms may be biased, and that predatory fintech loans are destabilizing small business owned by women and people of color. The CFPB and other agencies must vigorously enforce fair lending laws against predatory and discriminatory fintech lenders. Bank partnerships with fintech lenders must be thoroughly scrutinized to ensure fair lending and consumer protection laws are followed
  • In addition to bank and fintech loans, small businesses are vulnerable to high cost products like Merchant Cash Advance and installment loans that can financially sink business owners instead of helping them.

Homeownership

Home loans are hard to come by in neighborhoods of color. Banks are increasingly focused on making jumbo loans which disproportionately benefit white borrowers, while making fewer loans to Latino and African American borrowers, and abandoning FHA loans in favor of their own, unproven products, with less than impressive results.

  • Any future GSE reform must maintain a duty to serve communities and retain affordable housing goals. Currently, Fannie and Freddie need to be held accountable to meeting ambitious affordable housing goals, and should offer more flexible products to qualified homeowners.
  • We are concerned about a return to redlining, and hope to see DOJ, CFPB and HUD continue their important work in enforcing fair housing and fair lending laws.
  • HUD is currently investigating CRC’s first HUD redlining complaint (more information and graphs below), filed against OneWest Bank for having few branches and making few home loans in neighborhoods of color in six Southern California counties.
  • Given our aging population, increased oversight is needed in the reverse mortgage market to ensure that seniors are not taken advantage of by loan originators and servicers.
  • CRC is deeply concerned that seniors are continuing to lose their homes unnecessarily due to servicer bureaucracy, a lack of strong oversight of this industry by HUD, and a very limited infrastructure to help seniors and their families avoid needless foreclosures.  The elimination of funding for Legal Aid organizations will exacerbate this problem.

Affordable Rental Housing

California continues to suffer from an affordable housing crisis. The California Housing Partnership Corporation estimates that California needs 1.5 million affordable homes to accommodate the state’s lowest income residents.

  • Any HUD budgets cuts to key programs such as HOME, CDBG, Rental Assistance and Low Income Housing Tax Credits, could be devastating.
  • California nonprofit housing developers report that many investors, including banks subject to the Community Reinvestment Act, are pulling back from existing commitments in tax credit deals and attempting to renegotiate terms in light of pending tax reform. The result is fewer units produced and more subsidy coughed up at the 11th hour by desperate nonprofits who then must forego developer fees, and local governments which must contribute additional, unplanned subsidies.
  • Banks should receive CRA rating downgrades for such behavior as well as for seeking community development lending credit for loans that foreseeably lead to displacement of low and moderate income residents the CRA was meant to benefit.
  • CRC is deeply concerned about Fannie Mae’s recent commitment to guarantee up to $1 billion in debt backed by single family rental homes owned by private equity giant Blackstone.
  • Fannie Mae and Freddie Mac must continue to invest in the National Housing Trust Fund and Capital Magnet Fund.
  • Importantly, HUD must continue to implement Affirmatively Furthering Fair Housing obligations and assist local jurisdictions in meeting critical housing needs, fighting displacement and creating access to areas of opportunity for all.

Immigrant Access

The current political environment, with its changing policies and harsh rhetoric is threatening to drive immigrant communities out of the country, or out of sight. A recent CRC survey of confirms that many of our organizational members are seeing clients go underground, fail to show up for jobs, and forego access to needed services because they are concerned about ICE.

  • Bank regulators and banks should work together to clarify and simplify the privacy data rights of immigrants so they will not fear that banks will share their private data with the government.
  • Banks should also be encouraged to lend directly to qualified immigrant homeowners and small business owners who may have ITIN numbers, as well as invest in CDFIs and community lenders that make such loans.
  • For banks serving large immigrant populations, they should consider what information may be helpful to share with their customers about power of attorney and other bank access issues should a household member face deportation.

Payday lending

Payday lending continues to be a scourge on working families, charging 400% APR for short term loans that trap unsuspecting consumers in cycles of debt.

  • The CFPB has designed well considered and reasonable rules to protect consumers against abuses.
  • Federal intervention is needed as payday lenders and lobbyists have a stranglehold in Sacramento.
  • Banks should be incentivized to continue to develop small dollar alternatives to such products and to assist CDFIs and other community lenders that seek to fill this niche, and should also be penalized in their CRA exams for any financing to high-cost, predatory lenders.

Overdraft

According to the CFPB, the majority of overdrafts are on transactions of $24 or less and are repaid within 3 days or less. The CFPB calculated that with a median overdraft fee of $34, this is equivalent to a loan with a 17,000 APR.

  • It is telling that payday lenders defend their triple digit APR loans by saying consumers are merely making informed decisions to take out payday loans because they are less expensive than overdraft fees.
  • Banks continue to overly rely on overdraft fees as a source of fee revenue, to the detriment of their clients. CFPB rules on abusive overdraft policies are important, and all regulators should independently examine the impact of overdraft on bank customers, and work with their banks to end this product.

 

More on CRC’s Redlining Complaint Against CIT Group

Redlining Complaint Against OneWest Bank filed by California Reinvestment Coalition

Mortgage lending in 2015 (CRC)

The complaint alleges that OneWest Bank’s lending to borrowers in communities of color is low in absolute terms, low compared to its peer banks, and is lower than one would expect, given the size of the Asian, African American and Latino populations in Southern California.

Branch locations OWB

As part of the complaint, an analysis of the bank’s assessment areas found that OneWest has only 1 branch in an Asian majority census tract, no branches in African American majority census tracts, and 11 branches in Hispanic majority census tracts.

Branches in Asian, African American, and Hispanic majority trats (OWB)

While OneWest’s foreclosure record is not part of the redlining complaint, analysis by CRC and Urban Strategies Council found that OneWest was nine times as likely to foreclose in communities of color as compared to extending mortgage loans in communities of color.

OWB foreclosures vs originations

New Payday Loan Facts in California

Did you hear that the Consumer Financial Protection Bureau is finalizing rules for high-cost payday, car title, and installment loans?

If you’re curious to know more about these loans, and the impact they have (mostly negative) on Californians and our state economy, then you’ll want to read CRC’s new fact sheet on payday lending in California.

It includes the latest data from the California Department of Business Oversight, as well as research on the negative drag to California’s economy created by payday loans.

california-payday-loan-brochure

 

 

You can download the fact sheet by clicking here.

If you want to learn more about payday loans in California- and the work the California Reinvestment Coalition is doing to take on predatory lending, click here and visit the CRC website.

California Lawmakers Call on CFPB for Stronger Payday Lending Rule

Payday Lenders

Have you heard?  After decades of abusive lending practices by payday, car title, and high-cost installment lenders, a federal agency, the Consumer Financial Protection Bureau (CFPB) will be releasing a new rule to better protect borrowers who use these loans.

The Center for Responsible Lending (CRL) and California Reinvestment Coalition (CRC) applauded California members of the U.S. Senate, U.S. House of Representatives, California State Legislature, city and county officials, and California Attorney General Kamala Harris who all sent official statements to the CFPB, calling on the bureau to strengthen an earlier, draft version of the rule.

In their letters, California lawmakers and attorney general highlighted that the proposed rule is a step in the right direction, but  that more needs to be done to ensure borrowers are not trapped in a cycle of debt by these predatory loans.

In California, payday lenders typically charge 366% APR on a $300, two-week loan.

Payday lenders and high cost lenders are also offering loans of $2,500 and above at 100% or higher  APRs. Consumers are especially vulnerable to this abusive practice as California does not have an interest rate cap for loans greater than $2,500.

“As elected representatives, we respectfully urge the Consumer Financial Protection Bureau to issue a strong federal payday lending rule that puts an end to the payday, car title, and high-cost installment loan debt trap nationwide” the legislators wrote.

“These high-cost unaffordable loans are detrimental to any community, but have a disproportionate impact on our African American and Latino neighborhoods. In California, payday lenders are twice as likely to be located in communities of color than in white communities, even after accounting for income. The core principle of CFPB’s proposal is the right approach—requiring lenders to ensure that a loan is affordable without having to re-borrow or default on other expenses. However, some of the details must be strengthened in order for this approach to truly work and protect Californians from predatory lenders.”

Payday lenders have invested in efforts to ward off state laws and federal regulations that would protect consumers. Some members of the California State Legislature, including California Assemblyman Ian Calderon (District-57) have pushed to weaken regulations against payday and car title lenders by calling on the CFPB to go light on rules that prevent abusive financial practices.

“This rule will create the first nationwide regulatory floor for the payday lending industry, while maintaining the prerogative of states to further strengthen their consumer protection laws and regulations as they see fit.” the attorney general wrote. “I strongly support the Bureau’s proposal to require a meaningful “ability-to-repay” standard and to curb collection abuses, as well as its proposals for structural protections to help protect consumers from being trapped in long-term, unaffordable debt.”

“Payday and car title lending significantly harm borrowers and their families. They lead to financial consequences, such as bank penalty fees, loss of cars, and bankruptcy. It’s discouraging to see that some members of the state legislature have aligned themselves with payday lenders instead of putting the interests of California families first.” explained Center for Responsible Lending Director of California Policy Graciela Aponte-Diaz. “We commend the members and the attorney general for their leadership and standing up against the payday lending industry.”

“For years, payday lenders have siphoned money out of the pockets of Californians who can least afford it,” said California Reinvestment Coalition Director of Community Engagement Liana Molina. “We applaud our state elected officials for standing up for responsible lending and we join them in urging the CFPB to finalize a rule that will protect borrowers.”

California state legislative members who signed the comment letter were:

Senators Bob Wieckowski, Mark Leno, Senator Fran Pavley, Hannah-Beth Jackson, Mike McGuire, Benjamin Allen, and Carol Liu; and Assembly Members Mark Stone, Patty Lopez, Philip Ting, Susan Talamantes Eggman, and Susan Bonilla.

The following local policymakers also called for a stronger payday lending rule:

Berkeley City Councilmember Jesse Arreguin, Menlo Park Mayor Rich Cline, Oakland Mayor Libby Schaff, San Jose Mayor Sam Liccardo, Roseville Mayor Carol Garcia, the Los Angeles County Board of Supervisors, San Mateo County Board of Supervisors President Warren Slocum, and Santa Clara County Supervisor Ken Yeager.

Additionally, U.S. Representative Maxine Waters led a group of more than 100 Congressional members in sending a comment letter to the CFPB Director calling for a stronger payday lending rule.

The California Congressional delegation members who signed the comment were: Peter Aguilar, Karen Bass, Xavier Becerra, Ami Bera, Judy Chu, Mark J. DeSaulnier, Anna G. Eshoo, Sam Farr, John Garamendi, Janice Hahn, Mike Honda, Jared Huffman, Barbara Lee, Ted W. Lieu, Zoe Lofgren, Alan Lowenthal, Lucille Roybal-Allard, Linda T. Sánchez, Jackie Speier, Mark Takano, Juan Vargas, and Maxine Waters.

Both U.S. Senators from California, Senators Dianne Feinstein and Barbara Boxer, have also signed on to a letter urging CFPB for a stronger rule.

CRL and CRC have consistently fought against abusive predatory lending practices across California. Recently, CRL and CRC sent comments to CFPB calling for the Bureau to end the payday lending debt trap and close off paths to evasion for predatory payday lenders. Read CRL’s letter here and CRC’s letter here.

As part of its rulemaking process, CFPB released its proposed rule on June 2, 2016, and has since received public comments from families, communities, and organizations. The final day for public comment was on October 7, 2016. The CFPB is expected to make its final decision on the regulations in 2017.

Los Angeles County Takes Stand Against Predatory Payday, Car Title, Installment Lending Practices, Urges Strong CFPB Rules

Editor’s note: If your organization would like to support strong consumer protections being included in the new CFPB rules for payday, car title, and high-cost installment loans, please contact Liana Molina (liana AT calreinvest.org) at CRC and she can help.  The deadline to give your feedback is approaching fast- it’s October 7, 2016!

On Thursday, September 8th, the Chair of the LA County Board of Supervisors, Hilda L. Solis, hosted a press conference with LA community leaders where she talked about the financial harms caused by predatory payday, car title, and high-cost installment loans.

This slideshow requires JavaScript.

(Photo credits: Supervisor Solis' office, LULAC, Samuel Chu, and CRC)

LA County Motion

At the press conference, Supervisor Solis announced an LA County motion in support of the Consumer Financial Protection Bureau (CFPB) implementing strong federal rules to better protect consumers from harmful lending practices by payday, car title, and high cost installment lenders. The motion was approved unanimously the following week, making Los Angeles County the largest county in California (and the US) to pass a motion supporting strong rules by the CFPB to better protect consumers from predatory lending.

Supervisor Solis explained: “This motion is an important way for the Los Angeles County Board of Supervisors to demonstrate that we believe protecting families and their pocketbooks is good public policy and that we strongly support the CFPB finalizing a rule that will prioritize borrowers over ill-gotten profits.”

Community Leaders

Rabbi Joel Thal Simonds, associate program director at the Religious Action Center of Reform Judaism, opened the event. He explained: “The words of Exodus 22:24 remind us that ‘If you lend money to My people, to the poor among you, do not act toward them as a creditor; exact no interest from them.’ We seek a just and caring society in which those in need are not set on downward spiral of debt and hopelessness. That is why we must stop the abusive practice of payday lending which profits off the hardships of those living paycheck to paycheck. ”

Borrowers Discuss Their Experiences

During the press conference, former payday loan consumers also spoke about their experience with the so-called “payday loan debt trap.”  The “debt trap” refers to the fact that most payday loan borrowers are unable to repay their first loan when it comes due two weeks after they got it. So, they are forced to roll over or renew the loan, often multiple times, and they are paying an average APR in California of 366% when borrowing these loans.

Christina Griffin explained:

“When I had a financial emergency, I thought I could use a payday loan once and be done with it. Instead, I couldn’t pay back the loan two weeks later- and also be able to pay my other expenses. So, I had to keep rolling over my payday loan- which meant more and more fees and less money for other things- like groceries. As a former customer who survived the “debt trap,” I’m urging the CFPB to put a stop to this “debt trap” for future borrowers.”

Rosa Barragán shared her story of getting caught in a long term cycle of payday loan debt when she took out a loan following the passing of her husband.  You can read more of her story in La Opinión’s article about the press conference: Exigen mano dura para las compañías de ‘payday loans’.

rosa-barragan-photo-credit-chair-solis-office

Rosa Barragan speaking

Pit of Despair Art Installation

In addition to the press conference, a visually stunning, life-sized 3D art installation, the “Pit of Despair” was unveiled.  It was created by an artist named Melanie Stimmel and the team at We Talk Chalk, and it is a graphic illustration of how payday lending really works. The interactive art display has traveled around the country to visually demonstrate the “debt trap” that the majority of payday loan borrowers find themselves in when they are unable to make a balloon payment to repay their loan two weeks after they receive it. As a result, most borrowers renew their loans repeatedly (incurring more charges each time), which has been labeled the “payday loan debt trap.”

Putting finishing touch on Pit of Despair- thanks Americans for Financial Reform!

Putting finishing touch on Pit of Despair- thanks to Americans for Financial Reform for sharing it!

The Negative Impact of Payday Loan Stores in Los Angeles
Los Angeles County is home to approximately 800 payday loan storefronts, by far the most of any county in California. Because of the structure and terms of payday, car title, and high-cost installment loans, they worsen the financial position of most borrowers. Research has found that lenders are disproportionately located in communities of color, and are a net drag on the overall economy.

Bill Allen, CEO of the Los Angeles County Economic Development Corporation, explained the impact  of payday loan fees recently in an LA Daily News OpEd:

“These “alternatives” drain low-income residents’ scant savings. More than $54 million in check-cashing fees and $88 million in payday loan fees each year are paid by county residents. If those consumers had better financial services options, much of that $142 million could go toward building household savings, thus increasing economic stability for their families and communities.”

Gabriella Landeros from the Los Angeles County Federation of Labor explained: “Working families deserve better than the harmful financial products peddled by these lenders, and we join the LA County Board of Supervisors in urging the CFPB to finalize and enforce a strong rule to protect consumers.”

Liana Molina, director of community engagement at the California Reinvestment Coalition, helped organize the event and coordinated with the StopTheDebtTrap team at Americans for Financial Reform to bring the “Pit of Despair” art installation.  She explained:

“The payday loan industry advertises their loans as quick, one-time “fix” for a financial emergencies. In reality, these loans are designed to do the opposite. The majority of borrowers will end up renewing their loans repeatedly and incurring huge fees every time they do so. The CFPB can stop this “debt trap cycle” by implementing a strong rule that would require lenders to underwrite these loans, to determine that borrowers have the ability to repay without having to re-borrow or default on other expenses.”

CRC extends a big thank you to the organizations that made the event possible:

East LA Community Corporation (ELACC),

LULAC – California,

New Economics for Women (NEW),

Mexican American Opportunity Foundation (MAOF),

Montebello Housing Development Corporation (MHDC),

Consumer Action,

Los Angeles County Federation of Labor, AFL-CIO,

Labor Community Services, AFL CIO,

Pacific Asian Consortium in Employment (PACE),

Asian Pacific Policy and Planning Council (A3PCON),

Multi-Cultural Real Estate Alliance for Urban Change,

Thai Community Development Center (Thai CDC),

Haven Neighborhood Services,

Korean Churches for Community Development (KCCD),

Koreatown Youth and Community Center (KYCC),

Public Counsel,

Religious Action Center for Reform Judaism, and

VEDC

Additional Background on the Impact of Payday Loans in California 

While fourteen states and the District of Columbia have interest rate caps of about 36% APR or less, California law allows for two-week, $300 payday loans at 459% APR interest.

The California Department of Business Oversight recently released two reports on payday lending, and car title and high cost installment loans.

A few stats are included below:

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

2) Average number of loans and average APRs: The average number of payday loans per customer was 6.5, paying an average APR of 366% (a 5% increase from 2014).

3) Repeat borrowers and “churning” of loans: Contrary to loans being advertised as a “one time fix for emergencies,” 64% of fees in 2015 ($53.53 million) – came from customers who had seven or more payday loan transactions during the year.

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

The CFPB’s Impact in California

Have you heard? Yesterday was the 5th anniversary of the Consumer Financial Protection Bureau.  In that short time, the agency has built a reputation for dramatically increasing transparency into the financial services market, leveling the playing field between consumers and financial corporations, and putting bad actors on notice that they will face consequences.

bday cake

Senator Elizabeth Warren is widely credited with the idea of an agency that would stand up for financial consumers, and the CFPB was included in the Dodd Frank financial reform that was passed in response to the mortgage meltdown.

While advocates had repeatedly warned federal and state regulators and elected officials about the predatory mortgages that were being made, these warnings fell on deaf ears.

IMG_4294

Predatory loan advertising

In the summer of 2013, CRC and our allies urged the US Senate to confirm Richard Cordray as director of the CFPB and we were happy to see that he confirmed on July 16, 2013.

CFPB confirm!

CRC and our allies delivering over 25,000 petitions from Californians, urging the US Senate to confirm Richard Cordray.

Since then, Cordray and his CFPB colleagues have been busy!

In an April snapshot about California and complaints submitted by Californians, the CFPB reported:

1) As of April 1, 2016, Californians had submitted 118,900 of the total 859,900 complaints the CFPB had received at that point, or about 14%.

2) Complaints from Los Angeles and San Francisco accounted for nearly 50% of these complaints.  (CRC won’t claim credit for all of the San Francisco complaints, but we receive a fair amount of phone calls from harmed consumers and we frequently suggest making a complaint to the CFPB if it is accepting complaints for that particular product.  Not only does this hopefully lead to redress for the affected consumer, but it also helps the CFPB to see if there are concerning trends- for example if a lot of consumers are complaining about a particular company or product).

3) Speaking of “lots of complaints about a particular product,” mortgages were #1 most complained about product in the April snapshot, accounting for 32% of complaints.  In fact, complaints from California were more likely to be about mortgages as compared to the number of complaints made about mortgages at the national level (about 26%).

4) Debt collection was also frequently complained about, representing 24% of all California complaints, as compared to 26% nationally.

5) Most complained about companies: The CFPB received the most complaints from California consumers about Bank of America, Wells Fargo and Experian.

We’re including five examples of how the CFPB has stood up for consumers below:

1) Stopping Illegal Harassment of Payday Loan Borrowers: The CFPB has stopped companies from engaging in illegal and predatory behavior- like Ace Cash Express illegally harassing their customers into rolling over their payday loans. In announcing the settlement, Director Cordray explained: “This culture of coercion drained millions of dollars from cash-strapped consumers who had few options to fight back.”   Take a look at this graphic from the CFPB’s settlement with Ace Cash Express.  It’s from their new employee training manual and provides a clear diagram on how Ace tried to keep its borrowers caught in the payday loan debt trap:

ACE Cash Express

2) Targeting Enablers Too: The CFPB doesn’t just target bad actors, it also targets companies that enable bad actors- like this California based lead generator (D and D Marketing, doing business as T3Leads (T3)) that sold consumer loan applications as “leads” to small-dollar lenders. The CFPB explained that “T3 failed to vet or monitor its lead generators and lead purchasers, exposing consumers to the risk of having their information purchased by actors who would use it for illegal purposes. T3 allowed its lead generators to attract consumers with misleading statements and took unreasonable advantage of consumers’ lack of understanding of the material risks, costs, or conditions of the loan products for which they apply. T3’s conduct was unfair and abusive….”

To understand why online lead generators can be so bad for customers, take a look at this NPR Story: I applied for an online payday loan: here’s what happened next.

3) Loan Modification Scam Artists: In some ways, California was ground zero for the mortgage meltdown, especially since many of the most predatory lenders (like Countrywide) were headquartered in Southern California.  Since the mortgage meltdown, more bottom-feeding vultures have emerged, preying on desperate homeowners with promises of costly loan modifications that never materialize.  In July 2014, the CFPB, FTC, and state regulators announced a sweep against these scam artists.  The Bureau filed three lawsuits against these companies and individuals who had collected more than $25 million in illegal fees for services that were never delivered.  California was also “well-represented,” with a number of these scam artists located in our state. The CDPB’s complaint alleged that one of these firms,  Clausen, Cobb, and CCMC “managed, staffed, and supported the deceptive loan modification operations of Stephen Siringoringo’s southern California law firm. The State Bar of California initially referred the misconduct to the CFPB.”

4) Predatory Mortgage Loan Servicing: The CFPB hasn’t only gone after scam artists- it’s also worked to stop companies who are cutting corners and hurting their customers in the process.  One such company is Ocwen, a mortgage loan servicer.  In 2013, the CFPB announced a $2 billion settlement against Ocwen for “systemic misconduct at every stage of the mortgage servicing process.”  The settlement also covered homeowners with loans from Litton (a servicer formerly owned by Goldman Sachs who had also received low marks for the way it treated its customers) and Homeward Residential Holdings LLC (formerly American Home Mortgage Servicing Inc.).

5) Protecting Mortgage Customers: During the “Wild West” days of mortgage lending leading which later caused the mortgage meltdown, lenders routinely rewarded their staff members for putting customers into more expensive mortgages.  Surprisingly, this practice was allegedly still in place at RPM Mortgage, according to a 2015, $19 million settlement with the CFPB.

If you’d like to learn more about the CFPB, check out these resources:

Consumers Count: Five years standing up for you

New Report find Predatory Lending is Growing in California

DBO Car Title Report

new report released earlier this month by the California Department of Business Oversight provides new and disturbing data about the growth of predatory lending in California.

Liana Molina, director of community engagement at the California Reinvestment Coalition released the following statement:

“Today’s report proves that while high-cost installment and car title loans are currently legal in our state, they are causing incredible financial harm for California borrowers.

For consumer loans greater than $2,500, there is no interest rate cap, and it’s clear the lenders are taking full advantage.

Sixty-five percent of loans for $2,500-$4,999 came with interest rates of 70% APR or higher (354,696 loans). For loans of $5,000 to $9,999, thirty percent of the loans (51,236) had interest rates of 70% APR or higher.

Also troubling is that the number of car title loans increased almost 10% last year in California. This is especially disturbing since car title lenders also reported to the Department of Business Oversight that they repossessed nearly 17,000 cars from their customers in 2015. Not only are these lenders originating unsustainable, high-cost, predatory loans, but thousands of people (about 15% of their customers) lost their main mode of transportation as a result of obtaining a car title loan. Even worse, of the 16,989 borrowers who had their cars repossessed, 10,357 of them had a deficiency balance, meaning the lender will continue to harass them for more money beyond just taking their car.

The Consumer Financial Protection Bureau (CFPB) announced new, proposed rules earlier this month that would create national, uniform rules for payday, car title, and installment loans. While the CFPB’s proposed rules are an excellent first step in curbing the many abuses we’ve seen from this industry, there remains several loopholes that we believe the CFPB should eliminate in the final rule.

How can I help stop predatory lending in California?

We are working with our members, allies, and consumers to urge the CFPB to implement a strong, final rule that has NO exceptions for the industry to exploit.

Join CRC by signing our petition and urge the CFPB to prioritize strong consumer safeguards and responsible lending, NOT predatory lenders.