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 5 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

Merced’s Iconic Laura Fountain Returns to Splendor With $300K Restoration

DON'T MISS

If You Thought Trump Wasn’t Serious About Deportations, Look at His First Appointments

DON'T MISS

Biden EPA to Charge First-Ever ‘Methane Fee’ for Emissions Waste by Oil and Gas Companies

DON'T MISS

Trump Picks Former Arkansas Gov. Mike Huckabee to Be Ambassador to Israel

DON'T MISS

At the Pandemic’s Start, Americans Began Drinking More. They Still Are.

DON'T MISS

Last GOP Congressman Anchored in Democratic LA County Concedes in Race Against Former NASA Exec

DON'T MISS

Aid Groups Say Israel Misses US Deadline to Boost Humanitarian Aid Entering Gaza

DON'T MISS

Speaker Mike Johnson Says Republicans Are ‘Ready to Deliver’ on Trump’s Agenda

DON'T MISS

Wall Street Slips as the Trump Trade Cools

DON'T MISS

49ers Coach Kyle Shanahan Says Players’ Sideline Spat Has Been ‘Squashed’

UP NEXT

How Democrats Helped Trump

UP NEXT

Newsom Uses a Stunt to Position Himself as a Leader of Anti-Trump Resistance

UP NEXT

In Deep Blue California, Voters Don’t Always March to Dem Drums

UP NEXT

How Harris Lost Will Be Her Legacy

UP NEXT

Trump, Musk and an American Masculinity Crisis

UP NEXT

Let’s Keep Innovative Partnerships Crucial to Combating Climate Change: Fresno Dairy Manager

UP NEXT

No Matter the Outcome, We Are the True Losers of This Election

UP NEXT

California’s Transition Off Carbon Fuels Could Be a Monumental Disaster

UP NEXT

Don’t Let Liberal Purity Elect Trump

UP NEXT

Newsom Provides Welfare to the Wealthy, Skimps on Anti-Homelessness Programs

Trump Picks Former Arkansas Gov. Mike Huckabee to Be Ambassador to Israel

41 mins ago

At the Pandemic’s Start, Americans Began Drinking More. They Still Are.

1 hour ago

Last GOP Congressman Anchored in Democratic LA County Concedes in Race Against Former NASA Exec

1 hour ago

Aid Groups Say Israel Misses US Deadline to Boost Humanitarian Aid Entering Gaza

1 hour ago

Speaker Mike Johnson Says Republicans Are ‘Ready to Deliver’ on Trump’s Agenda

2 hours ago

Wall Street Slips as the Trump Trade Cools

2 hours ago

49ers Coach Kyle Shanahan Says Players’ Sideline Spat Has Been ‘Squashed’

2 hours ago

Cowboys QB Dak Prescott Will Have Season-Ending Surgery on Torn Hamstring

2 hours ago

Judge Delays Ruling on Whether to Scrap Trump’s Conviction in Hush Money Case

2 hours ago

Songwriters Hall of Fame Unveils Star-Studded 2025 Nominees, From Eminem to Janet Jackson

2 hours ago

Merced’s Iconic Laura Fountain Returns to Splendor With $300K Restoration

A landmark from days of old when Merced was known as “Fountain City” is back, fully restored for new generations to appreciate. ...

27 mins ago

27 mins ago

Merced’s Iconic Laura Fountain Returns to Splendor With $300K Restoration

32 mins ago

If You Thought Trump Wasn’t Serious About Deportations, Look at His First Appointments

40 mins ago

Biden EPA to Charge First-Ever ‘Methane Fee’ for Emissions Waste by Oil and Gas Companies

Republican presidential nominee former President Donald Trump talks with former Arkansas Gov. Mike Huckabee during a roundtable at the Drexelbrook Catering & Event Center, Tuesday, Oct. 29, 2024, in Drexel Hill, Pa. (AP Photo/Julia Demaree Nikhinson)
41 mins ago

Trump Picks Former Arkansas Gov. Mike Huckabee to Be Ambassador to Israel

1 hour ago

At the Pandemic’s Start, Americans Began Drinking More. They Still Are.

1 hour ago

Last GOP Congressman Anchored in Democratic LA County Concedes in Race Against Former NASA Exec

1 hour ago

Aid Groups Say Israel Misses US Deadline to Boost Humanitarian Aid Entering Gaza

2 hours ago

Speaker Mike Johnson Says Republicans Are ‘Ready to Deliver’ on Trump’s Agenda

Search

Send this to a friend