- The total loan amount decreased by $ 1.14 billion in 2020
- Reduction of part of a national trend that correlates with pandemic-related aid
(Reuters) – Borrowers in California took out 40% fewer payday loans in 2020 compared to the previous year, the state consumer finance regulator said in an annual report on Thursday.
Data Payday Lenders Submitted to the California Department of Financial Protection showed that the total value of borrowing in 2020 also fell 40% to $ 1.68 billion, from $ 2.82 billion the previous year.
DFPI Acting Commissioner Christopher Shultz said state and federal economic interventions during the COVID-19 pandemic, including federal relief exams, expanded unemployment insurance, and various types of loan deferrals, are a likely contributing factor to the decline.
But Shultz said while the relief helped keep California’s consumers afloat financially, the agency is watching what happens “when we get out of the pandemic.”
“Some of the economic consequences will be downstream and we need to watch that closely,” he said.
Shultz took over the agency in mid-June when its former commissioner Manuel Perez took on an internal role at the Binance cryptocurrency exchange.
Payday loans are short term small dollar loans that are given to customers who hand over a signed check for the amount. The lender provides the money minus a fee and agrees to cash the check within one month.
According to DFPI, about half of California borrowers who took out the loans in 2020 earned less than $ 30,000 a year. The average annual interest rate on the loans was 361%.
Payday lenders in California aren’t the only ones with a decline in business. Total weekly lending in nine states decreased 60% between February 2020 and May 2021, according to data from Veritec Solutions, which maintains payday lending data for state governments.
Kiran Sidhu, Policy Council at the Center for Responsible Lending, said Thursday that the correlation between pandemic aid and payday loans illustrates how low-income borrowers are using the loans as a stopgap financial solution.
“If we were to give people a universal basic income or better wages, they probably wouldn’t need these products,” she said.
The DFPI report also showed that the number of payday lenders fell 27.7 percent in 2020, leaving 1,121 licensed locations.
Ed D’Alessio, executive director of consumer finance trading group INFiN, said in a statement Thursday that 2020 “has been a difficult time from a business perspective”.
He attributed the decline in small dollar loans to consumers staying at home, paying off debts, and receiving government aid.
For those who have used consumer finance products, “we were proud to be there during this time of need,” he said.