Los Angeles County Program Tries to Foster Economic Stability; Counteract Payday Loans
In California, Los Angeles County’s income gap is vast. It’s the seventh largest gap out of the country’s 150 largest metro areas. About 10 million people live in the county — the biggest county in the United States — and 56 of them are billionaires with a combined net worth of $200 billion.
Meanwhile, 17 percent of residents live below the federal poverty line compared to $14.5 percent nationwide. Over the past few decades, wages at the top have steadily increased while wages at the bottom have steadily decreased.
A few years ago, the Los Angeles County Department of Consumer and Business Affairs started the Center for Financial Empowerment (CFE) to address income inequality in the county. A recent report reviewed the work of the CFE and shared how the organization has been working to foster economic stability and counteract financial threats, such as payday loans.
According to the report, residents in “relatively low-income neighborhoods,” such as East LA and Wilmington, lack access to traditional financial institutions such as banks and credit unions. Residents without financial access are called “unbanked” or “underbanked.” Without traditional lending options, may residents turn to high-risk loans, such as payday loans and title loans, when money is tight. These products come with interest rates upwards of 400 percent and fees, which can land residents in debt traps. The industry makes an estimated $8 billion from consumer fees each year.
This year, the governor of California signed a bill that caps interest rates for loans between $2,500 and $10,000 at 36 percent. But payday loans are often much smaller than that, and the 742 licensed payday loan and title loan lenders in Los Angeles County can still legally charge exorbitant interest rates.
East LA and Wilmington both have a disproportionate number of those 742 licensed payday and title loan lenders, supporting research that suggests these predatory lenders target economically vulnerable populations.
The CFE counteracts the ill effects of predatory lending by offering access to financial tools to residents in vulnerable neighborhoods. According to the report, this includes “credit counseling, financial coaching, bankruptcy and legal aid services, and tax preparation assistance programs.” The CFE also started the Bank On Los Angeles County program, which provides unbanked and underbanked residents options for “safe and affordable” bank or credit union accounts. As of the report’s writing, the program has helped residents open more than 42,000 accounts, 31,000 of which are “first time bank or credit union users.”