- Total amount borrowed dropped by $1.14 billion in 2020
- Decrease part of a national trend that correlates to pandemic-related aid
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(Reuters) – Borrowers in California took out 40% fewer payday loans in 2020 compared to the year before, the state’s consumer finance regulator said in an annual report on Thursday.
Data payday lenders submitted to the California Department of Financial Protection showed that the aggregate value of the loans taken out in 2020 also dropped 40%, to $1.68 billion from $2.82 billion the year before.
DFPI Acting Commissioner Christopher Shultz said that state and federal economic intervention during the COVID-19 pandemic, including federal relief checks, expanded unemployment insurance, and various types of loan forbearance, are a likely factor in the decline.
But Shultz said that while the relief helped keep California consumers afloat financially, the agency is watching what happens “as we come out of the pandemic.”
“Some of the economic consequences will be downstream and we need to monitor that closely,” he said.
Shultz took over the agency in mid-June when its former Commissioner Manuel Perez departed for an in-house role at cryptocurrency exchange Binance.
Payday loans are small-dollar, short-term loans made to customers who hand over a signed check for the amount. The lender provides the funds minus a fee and agrees to cash the check within a month.
Around half of California borrowers who used the loans in 2020 made less than $30,000 a year, according to the DFPI. The average annual percentage rates on the loans was 361%.
Payday lenders in California are not alone in experiencing a decline in business. Aggregate weekly lending in nine states dropped 60% between February 2020 and May 2021, according to data from Veritec Solutions, which manages payday lending data for state governments.
Kiran Sidhu, policy council at the Center for Responsible Lending, said on Thursday that the correlation between pandemic relief and payday lending illustrates how low income borrowers use the loans as a financial stopgap.
“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 percent drop in the number of payday lenders in the state, leaving 1,121 licensed locations.
Ed D’Alessio, the executive director of consumer finance trade group INFiN, said in a statement on Thursday that 2020 was “was a difficult time from a business standpoint.”
He attributed the downturn in small dollar loans to consumers staying home, paying down debt and receiving government aid.
For those who did use consumer finance products, “we have been proud to be there during this time of need,” he said.