How to Avoid Payday Loans in California

Inside Subprime: Dec 3, 2018

By Lindsay Frankel 

In California, 13.3 percent of people live in poverty. But when taking into account housing costs and other living expenses, the figure is measured at 19 percent. So although the unemployment rate dropped to a record low this year, many Californians are still struggling to make ends meet. Given that payday loan firms prey on the impoverished, it’s no wonder that there are more payday lending storefronts in California than McDonald’s and Starbucks stores combined. What’s more, payday lenders are known to disproportionately locate in poor areas and communities of color, and an increasing number of elderly borrowers are falling victim to payday loans in the state.

Payday loans aren’t helping with the already high cost of living in California, since lenders can charge annual percentage rates of up to 459 percent. The combination of exorbitant fees and short terms make it difficult for Californians to pay off these loans on time. Payday loans trap California borrowers in debt, costing them about $405 million each year.

What laws protect consumers from payday loans in California?

Payday lenders in California can issue a borrower one loan of up to $300 with a 15 percent fee. The maximum term is 31 days, but there’s no minimum term. A payday lender cannot issue a new loan on top of an outstanding loan, but that doesn’t stop Californians from borrowing from a second lender to pay off a loan from the first. And while you can request an extension on the term of the loan, the lender is not required to grant this request.

Even with these protections in place, debt from a payday loan can be impossible to overcome. The California Department of Business Oversight encourages consumers to exercise caution when using these risky products.

What other resources are available in California?

Payday loans are marketed as emergency products, but most people use them for recurring expenses. Securing additional income is your best defense against needing to borrow, but there are also government programs that can help curb everyday costs like food, housing, and medical expenses.

If you’re having difficulty covering the cost of food for your family, check to see if you are eligible for CalFresh, a program that helps low-income families meet their nutritional needs. There are also many food banks and food pantries in California that can help. Or, if housing costs have you in over your head, there are subsidized apartments and housing choice vouchers available in California. You can also consider applying for free weatherization to help with your energy costs. For further questions about rent assistance and other programs, dial 2-1-1.

Unexpected health care expenses can be some of the most costly. Low-income individuals who are uninsured should check their eligibility for Medi-Cal, California’s Medicaid program. There are also a number of free and sliding scale clinics in California for those seeking immediate care.

What are some alternatives to payday loans in California?

If you can’t ask family or friends for help, you can try talking to banks or credit unions about their loan products, or apply for a credit card. But people with bad credit or lack of established credit history might find that other options for borrowing are limited. Still, a payday loan is not the only option. Consider a lower-cost installment loan, which will give you the opportunity to build credit, so you can apply for a credit card in the future. Once you have your feet on the ground, it’s important to set up a savings plan and secure additional income if necessary.

For more information on payday loans, scams, and cash advances and title loans, check out our report on California payday loans including Anaheim | Bakersfield | Chico | Fresno | Los Angeles | Modesto | Oakland | Redding | Riverside | Sacramento | San Diego | San Francisco | San Jose | Santa Barbara | Stockton.

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