Cash-strapped Californians continue to migrate from payday loans to larger installment loans, but they’re not necessarily paying less to borrow.
Last year, Golden State consumers took out 10.2 million payday loans, the lowest number since 2006, according to data released Thursday. The number of payday loans granted in California has declined for five consecutive years.
But part of last year’s decline was offset by an increase in consumer installment loans, many of which are quite expensive. In 2018, lenders issued 1.19 million installment loans ranging from $500 to $9,999, an increase of 12% over the previous year.
The annual increase was 10% for consumer installment loans between $2,500 and $9,999, which generally have no interest rate cap in California. Some 42% of loans made in this category last year carried annual percentage rates of 100% or more, according to state data.
Manuel Alvarez, commissioner of the California Department of Business Oversight, said in a press release that the new data underscores the need to focus on the availability and regulation of low-cost credit products, especially those over 2,500. dollars.
Sacramento state lawmakers are currently considering legislation that would impose a rate cap of 36% plus the federal funds rate on installment loans between $2,500 and $9,999.
The bill has support from consumer groups and some lenders, but has drawn opposition from companies that typically charge higher interest rates. It was approved by the state Assembly in May and passed by a key Senate committee in June.
The shift from payday loans to longer term products may be partly the result of changes in the structure of the small loan industry nationwide.
In recent years, many high-cost consumer lenders have begun offering loans with terms of months, rather than just weeks, in anticipation of the implementation of a Financial Protection Bureau rule. consumers on short-term loans.
This proposal was developed under the Obama administration. Current office management has proposed changes that are favored by the payday industry.