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

World’s Largest Almond Processor Will Shutter Sacramento Plant. 600 Workers Impacted

DON'T MISS

Trump Eyes Major Funding Cuts for California, Including All Public Universities

DON'T MISS

Farming Regulation Costs Rise 1,300% Since 2006: Cal Poly

DON'T MISS

Southern California Air Regulators Weigh a Plan to Phase Out Gas Furnaces and Water Heaters

DON'T MISS

US Supreme Court Allows DOGE Broad Access to Social Security Data

DON'T MISS

Doctors Were Preparing to Remove Their Organs. Then They Woke Up.

DON'T MISS

Abrego Garcia Is Returned to US From El Salvador

DON'T MISS

Proud Boys Convicted in Jan. 6 Attack Sue Government on Claims of ‘Political Persecution’

DON'T MISS

FDA’s AI Assistant ‘Elsa’ Fails Its First Day on the Job

DON'T MISS

Documentary Series Goes Inside Trump’s Bubble

UP NEXT

We Are Being Governed by the Trump Organization Inc.

UP NEXT

California’s Economy Is Just Limping Along. Why Is Newsom Always Boasting?

UP NEXT

Really, Secretary Rubio? I’m Lying About the Kids Dying Under Trump?

UP NEXT

After Years of Undrinkable Water, Our Rural California Community Finally Has Hope

UP NEXT

Why Trump Is Mad at ‘Sleazebag’ Leonard Leo

UP NEXT

Newsom Tussles With Local Officials Over Homelessness

UP NEXT

California’s War Over Charter Schools Rages On in Court

UP NEXT

Why Did the California Senate Shunt a Cost-Cutting Housing Bill?

UP NEXT

Fresno’s Crime Beat Didn’t Prepare Me for What I Saw on a Ride Along

UP NEXT

The MAGA Revolution Threatens America’s Most Innovative Place

Southern California Air Regulators Weigh a Plan to Phase Out Gas Furnaces and Water Heaters

17 hours ago

US Supreme Court Allows DOGE Broad Access to Social Security Data

17 hours ago

Doctors Were Preparing to Remove Their Organs. Then They Woke Up.

17 hours ago

Abrego Garcia Is Returned to US From El Salvador

17 hours ago

Proud Boys Convicted in Jan. 6 Attack Sue Government on Claims of ‘Political Persecution’

18 hours ago

FDA’s AI Assistant ‘Elsa’ Fails Its First Day on the Job

18 hours ago

Documentary Series Goes Inside Trump’s Bubble

18 hours ago

Tulare County Gang Member Convicted of Trying to a Murder Police Officer

18 hours ago

Newsom Promises Funding to Jump-Start ‘Science of Reading’

19 hours ago

Feds Indict SoCal Hospice CEO for Medicare Fraud in Fresno and Kern Counties

19 hours ago

World’s Largest Almond Processor Will Shutter Sacramento Plant. 600 Workers Impacted

The world’s largest almond processor, Blue Diamond Growers, says it will close its Sacramento processing plant this year The almond co...

15 hours ago

15 hours ago

World’s Largest Almond Processor Will Shutter Sacramento Plant. 600 Workers Impacted

17 hours ago

Trump Eyes Major Funding Cuts for California, Including All Public Universities

17 hours ago

Farming Regulation Costs Rise 1,300% Since 2006: Cal Poly

18 hours ago

Southern California Air Regulators Weigh a Plan to Phase Out Gas Furnaces and Water Heaters

18 hours ago

US Supreme Court Allows DOGE Broad Access to Social Security Data

18 hours ago

Doctors Were Preparing to Remove Their Organs. Then They Woke Up.

18 hours ago

Abrego Garcia Is Returned to US From El Salvador

19 hours ago

Proud Boys Convicted in Jan. 6 Attack Sue Government on Claims of ‘Political Persecution’

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

Search

Send this to a friend