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Californians took 40% fewer payday loans during pandemic: report

A Super Flower Moon rises through low clouds over the city of San Diego, California, U.S. May 25, 2021. REUTERS/Mike Blake

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  • The total amount borrowed decreased by $1.14 billion in 2020
  • Decrease part of a national trend that is correlated to pandemic-related aid

(Reuters) – California borrowers took out 40% fewer payday loans in 2020 than a year earlier, the state’s consumer credit regulator said in an annual report on Thursday.

Payday lender data submitted to California Department of Financial Protection show that the aggregate value of loans taken out in 2020 also fell by 40%, to $1.68 billion from $2.82 billion the previous year.

Acting DFPI Commissioner Christopher Shultz said the economic response from states and the federal government during the COVID-19 pandemic, including federal relief checks, the extension of unemployment insurance and various types of loan forbearance, is a likely factor in the decline.

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But Shultz said while the relief has helped keep California consumers afloat financially, the agency is monitoring what’s happening “as we emerge from 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 left for an internal role at cryptocurrency exchange Binance.

Payday loans are short-term, low-amount loans given to customers who hand over a signed check for the amount. The lender provides the funds less a fee and agrees to cash the check within one month.

About half of California borrowers who used the loans in 2020 earned less than $30,000 a year, according to the DFPI. Average annual percentage rates on loans were 361%.

Payday lenders in California aren’t the only ones experiencing a drop in business. Aggregate weekly lending in nine states fell 60% between February 2020 and May 2021, according to data from Veritec Solutions, which manages payday loan data for state governments.

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Kiran Sidhu, policy adviser for the Center for Responsible Lending, said Thursday that the correlation between pandemic aid and payday loans illustrates how low-income borrowers are using loans as a financial palliative.

“If we paid people a universal basic income or paid them better wages, they probably wouldn’t need these products,” she said.

The DFPI report also showed that 2020 saw a 27.7% drop in the number of payday lenders in the state, leaving 1,121 licensed locations.

Ed D’Alessio, chief executive of consumer finance business group INFiN, said in a statement Thursday that 2020 was “a challenging time from a business perspective.”

He attributed the decline in small dollar loans to consumers staying home, paying off debt and receiving government assistance.

For those who have used consumer credit products, “we were proud to be there during this time of need,” he said.

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