Payday loans decline in California as borrowers turn to installment products

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Cash-strapped Californians continue to migrate from payday loans to larger installment loans, but they don’t necessarily pay less to borrow.

Last year, Golden State consumers took out 10.2 million payday loans, the lowest number since 2006, data showed Thursday. The number of payday loans made in California has declined for five consecutive years.

But part of last year’s drop was offset by an increase in consumer installment loans, many of which are quite expensive. In 2018, lenders made 1.19 million installment loans between $ 500 and $ 9,999, a 12% increase from the previous year.

The annual increase was 10% for consumer installment loans between $ 2,500 and $ 9,999, which generally do not have an 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 dollar credit products, especially those over 2,500. $.

State lawmakers in Sacramento are currently considering legislation this would impose a cap rate of 36% plus the federal funds rate on installment loans between $ 2,500 and $ 9,999.

The bill has the support of consumer groups and some lenders, but has drawn opposition from companies who 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 away from payday loans in favor of longer-term products may in part be the result of changes in the structure of the low-value loan industry nationwide.

In recent years, many high-cost consumer lenders have started offering loans lasting several months, rather than weeks, in anticipation of the implementation of a Consumer Financial Protection Bureau rule on short-term loans.

This proposal was developed under the Obama administration. The current leadership of the office has proposed changes that are being favored by the troubleshooting industry.

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