Grocery Stores and Payday Loans in California

Inside Subprime: July 19, 2018

By Kerry Reid

Running out to the grocery store for a few things usually means milk, coffee, a loaf of bread. But Northgate stores in southern California also offer payday loans from small operations inside the supermarket – up to $2,500. Now a bill in the California state legislature could boost that amount to $7,500.

Assembly Bill 237, authored by Assemblywoman Lorena Gonzalez Fletcher (D-San Diego), would allow participating lenders to offer the bigger loans. Fletcher suggested in an article by James Rufus Koren of the Los Angeles Times that the larger amounts would help families who need more money for immigration attorneys or for funeral expenses.

California’s payday industry is complicated. Essentially, payday lenders can make small loans of no more than $255 with strict fee limits. The state’s Department of Business Oversight notes that small loans cannot charge fees of more than 15% of the face amount of the check, up to $45, which is equivalent to an APR of 460% for a two-week loan.

Loans of up to $2,499 carry interest rates between 20 and 30 percent. And loans between $2,500 and $10,000 have no interest limits whatsoever. Naturally, many lenders only want to operate in that higher-interest market.

In an attempt to provide more flexible loan options for borrowers, the state created a pilot program that allows lenders to charge somewhat higher fees and interest up to that $2,500 ceiling. In order to participate, lenders have to agree to report to credit bureaus, offer more underwriting than typically exists in the brick-and-mortar payday market (noted for its “No Credit? No Problem!” approach to selling loans), and offer financial education to borrowers. In exchange, they can charge up to 36 percent interest.

Currently, Northgate Markets acts as a “finder” for the actual lending firm – they advertise the loans and help borrowers fill out the paperwork but are not licensed brokers themselves.

Opponents in the industry say that Northgate could offer the larger loans without changing the law. All they would need to do is have their “finders” apply to become licensed loan brokers, with the greater oversight and reporting requirements that come with that license.

According to the Times, a coalition of consumer-advocacy groups, including the Center for Responsible Lending, sent a letter to lawmakers questioning the bill. “Until we make real progress on across-the-board small-dollar credit issues, bad actors will continue to exploit gaps in the law and peddle costly loans in our communities.”

According to the Times, nearly half of all loans between $2,500 and $10,000 made by state-licensed lenders in California last year came with interest rates topping 100 percent.

Earlier this summer, Assembly Bill 2500, endorsed by the Center for Responsible Lending, failed to pass. The bill would have capped interest rates on all loans between $2,500 and $5,000 at 36 percent.

To learn more about payday loans in the United States, check out these related pages and articles from OppLoans: