Please ensure Javascript is enabled for purposes of website accessibility
Walters: Capping High Interest Rates on Loans Doesn't Fix Poverty
dan_walters
By Dan Walters, CalMatters Commentary
Published 6 years ago on
June 2, 2019

Share

Last month, the Federal Reserve System issued a report on “the economic well-being of U.S. households” and it contained a rather disturbing bit of data.


Dan Walters
CALmatters

“If faced with an unexpected expense of $400,” a survey of American households found, “61% of adults say they would cover it with cash, savings, or a credit card paid off at the next statement – a modest improvement from the prior year.”
Turning that around, 39% of American adults say they couldn’t readily cover an unexpected $400 expense – for a car repair, perhaps, or an emergency room visit. The survey found that two-thirds of them “would borrow or sell something to pay for the expense” and the remainder “would not be able to cover the expense at all.”
Not surprisingly, that 39% number coincides rather neatly – if unfortunately – with poverty in California.
The Census Bureau says California has the nation’s highest level of poverty when the cost of living is included in the calculation, with about 20% of its 40 million residents impoverished. The Public Policy Institute of California, using a similar methodology, calculates that another 20% are living in “near-poverty.”

Curbing the High-Interest Loans Poor Californians Often Take Out

It’s not a stretch to conclude that the 40% of Californians in economic distress probably are incapable of meeting a sudden $400 expense – which brings us to Assembly Bill 539, which passed the Assembly on a 60-4 vote on the same day the Federal Reserve report was released.
The measure, carried by Assemblywoman Monique Limón, a Santa Barbara Democrat, is aimed at curbing the very high-interest loans that poor Californians often take out to meet living costs because they are unable to qualify for conventional credit.
It would place a 36% annual interest rate cap on loans made by state-licensed lenders, more than a third of which have interest rates above 100%, according to the Department of Business Oversight.
Such ultra-high rates are, a legislative analysis of the bill says, “a relatively new phenomenon in California,” growing from 8,468 such loans in 2009 to more than 350,000 per year now, totaling more than $1 billion.
Critics call that “predatory lending” that takes advantage of poor people, who often lack the education or consumer awareness to steer clear of these legal loan sharks. Unable to afford the high payments such loans demand, their unpaid balances are often folded into new loans with high fees and interest.

Measures Seek to Alleviate the Effects of California’s Embarrassingly High Poverty

Limón says she wants to affect the “small number of lenders” that specialize in such loans. “I’ve worked hard to find a compromise,” she told the Assembly, saying her bill would “benefit both consumers and responsible lenders alike.”

Limón says she wants to affect the “small number of lenders” that specialize in such loans. “I’ve worked hard to find a compromise,” she told the Assembly, saying her bill would “benefit both consumers and responsible lenders alike.”
The legislation, now pending in the Senate, is clearly a sincere effort to protect the poor. However, it does nothing about the underlying fact that so many Californians live on the edges of financial precipices and turn to high-interest lenders in desperation when cars break down, when landlords demand rent, or when some other sudden expense rears its ugly head.
The bill is one of dozens of legislative measures that seek to alleviate the effects of California’s embarrassingly high poverty. There is, however, not nearly enough political action on poverty at the source – such as building more housing to bring down its cost, getting more kids through high school, improving skills to fill well-paying jobs now going unfilled for a lack of trained workers, and/or making California more attractive to investment in more jobs.
We sometimes lose sight of the well-proven fact that the best anti-poverty program is a good job.
CALmatters is a public interest journalism venture committed to explaining how California’s state Capitol works and why it matters. For more stories by Dan Walters, go to calmatters.org/commentary.

DON'T MISS

What Are Fresno Real Estate Experts Predicting for 2025 and Beyond?

DON'T MISS

First California EV Mandates Hit Automakers This Year. Most Are Not Even Close

DON'T MISS

Only About Half of Republicans Say Trump Has Focused on the Right Priorities

DON'T MISS

ICE Deports the Mother of an Infant and a 2-Year-Old Who Is a US Citizen

DON'T MISS

Israeli Airstrike Kills 10 People, Half of Them Children

DON'T MISS

Shedeur Sanders Is Still Waiting for a Call as the NFL Draft Enters the Final Day

DON'T MISS

Israel’s AI Experiments in the War in Gaza Raise Ethical Concerns

DON'T MISS

Paul Skenes Strikes Out 9, Wins Duel With Yamamoto in Pirates’ Victory Over Dodgers

DON'T MISS

Eovaldi Outlasts Verlander as Rangers Beat Giants

DON'T MISS

Rams Take Oregon Tight End Terrance Ferguson in Second Round After Trading Out of First

DON'T MISS

The Latest: Francis Is Remembered as a ‘Pope Among the People’ as He Is Laid to Rest

DON'T MISS

ICE Is Reversing the Termination of Legal Status for International Students Around the US

UP NEXT

We Need Proof of Life for the Makeup Artist Trump Sent to El Salvador

UP NEXT

As Harris Ponders Run for CA Governor, Is She Prepared for the Daunting Job?

UP NEXT

Lights, Camera, Board Vote: Fresno Unified’s Carefully Choreographed Production

UP NEXT

Given Its Failures, Can California Manage a Transition to a Carbon-Free Future?

UP NEXT

Over a Century Later, California May Need Another Revolt Against Its Utility Companies

UP NEXT

California’s Economy Was Already Sluggish Before Trump’s Global Tariffs

UP NEXT

Will Fresno Unified Sacrifice Another Generation of Students? The Choice Is Ours

UP NEXT

What if There’s No Way to Stop Trump’s Approach to Power?

UP NEXT

Zakaria Draws Parallels Between Trump’s Tariffs, Failed 1930s Economic Policies

UP NEXT

Americans Haven’t Found a Satisfying Alternative to Religion

Shedeur Sanders Is Still Waiting for a Call as the NFL Draft Enters the Final Day

22 minutes ago

Israel’s AI Experiments in the War in Gaza Raise Ethical Concerns

32 minutes ago

Paul Skenes Strikes Out 9, Wins Duel With Yamamoto in Pirates’ Victory Over Dodgers

53 minutes ago

Eovaldi Outlasts Verlander as Rangers Beat Giants

1 hour ago

Rams Take Oregon Tight End Terrance Ferguson in Second Round After Trading Out of First

1 hour ago

The Latest: Francis Is Remembered as a ‘Pope Among the People’ as He Is Laid to Rest

2 hours ago

ICE Is Reversing the Termination of Legal Status for International Students Around the US

2 hours ago

Trump Is a Revolutionary. Will He Succeed or Fail?

3 hours ago

Trump Now Doubts Putin Wants to End Ukraine War, a Day After Saying a Deal Was Close

3 hours ago

We Need Proof of Life for the Makeup Artist Trump Sent to El Salvador

3 hours ago

Only About Half of Republicans Say Trump Has Focused on the Right Priorities

WASHINGTON — Many Americans do not agree with President Trump’s aggressive efforts to quickly enact his agenda, a new poll finds, and ...

5 minutes ago

5 minutes ago

Only About Half of Republicans Say Trump Has Focused on the Right Priorities

13 minutes ago

ICE Deports the Mother of an Infant and a 2-Year-Old Who Is a US Citizen

18 minutes ago

Israeli Airstrike Kills 10 People, Half of Them Children

22 minutes ago

Shedeur Sanders Is Still Waiting for a Call as the NFL Draft Enters the Final Day

32 minutes ago

Israel’s AI Experiments in the War in Gaza Raise Ethical Concerns

53 minutes ago

Paul Skenes Strikes Out 9, Wins Duel With Yamamoto in Pirates’ Victory Over Dodgers

1 hour ago

Eovaldi Outlasts Verlander as Rangers Beat Giants

Rams
1 hour ago

Rams Take Oregon Tight End Terrance Ferguson in Second Round After Trading Out of First

Help continue the work that gets you the news that matters most.

Search

Send this to a friend