Unforeseen circumstances – a sudden illness or an eviction notice – can put low-income families in a difficult situation: getting the money they need to stay afloat in the short term, but risk falling into the clutches of predatory lenders.
According to experts, the people who are trapped in these bad debt loans are mostly minorities, undocumented immigrants, often have no (or bad) credit history or lack financial knowledge.
Beginning March 14, United Way Monterey County and CSU Monterey Bay began conducting loan service surveys in Salinas, specifically in ZIP Codes 93905 and 93906.
Their project is based on local research in Santa Cruz conducted by Mamás con Más, Santa Cruz Community Ventures, and the UC Santa Cruz Blum Center in 2018. The research showed that 76% of lenders in Watsonville were very high interest. Since Watsonville and Salinas share similar demographics, United Way and CSUMB want to determine the impact of predatory lending on local residents. United Way staff members Josh Madfis, vice president of community investments, and Socorro Bernal, director of community impact, say annual interest rates are very high, making it difficult for customers to pay off their debt , which impacts their credit score and risks losing their assets, such as a car title.
“Interest rates are ridiculously expensive,” Bernal says.
Lender Oportun currently offers cash loans at a rate of 36% in Salinas.
Patrick Redo, CEO of allU.S. Credit Union in Salinas notes that the matter has gone to Congress, seeking regulation on so-called payday lenders, but says more action is needed.
“There are no regulations as to what rates they can charge, so they can get away with almost anything,” Redo says.
In all of the United States, by comparison, the highest interest rate for a personal loan is 18%. Redo says some people prefer rogue lending institutions because the process of getting a loan requires less documentation and smaller amounts are available; most large institutions do not grant loans below $25,000.
Mayra Perez, a Salinas resident who lives in the 93905 zip code, says that last year she borrowed $5,000 — in her husband’s name, because she wasn’t working — from Oportun, for the send to his father who was ill in Mexico. A few months later, she had to move. She and her husband borrowed an additional $9,000 to pay rent and post their bond. Perez and her husband paid at least $200 a month. But over the past nine months, statements show that only between $16.33 and $95.58 was spent on principal, and the rest on interest. In March, they owed $8,353.22.
“[Lenders] help you, but they are abusive,” Perez says in Spanish.
Madfis says they already have anecdotal evidence of stories like Perez’s, and now they want to collect data. He hopes the research will help spur changes, such as the introduction of an interest rate limit in the city, so that people can access capital without entering “an endless cycle of poverty and indebtedness”.