Unforeseen circumstances – a sudden illness or an eviction notice – can put low-income families in a predicament: Get the money they need to stay afloat in the short term, but risk falling into clutches of predatory lenders.
People who are trapped in these inescapable loans are mostly minorities, undocumented immigrants, often have no (or bad) credit history or lack financial literacy, according to experts.
Starting on March 14, United Way Monterey County and CSU Monterey Bay began conducting surveys on lending services in Salinas, specifically in the 93905 and 93906 zip codes.
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 76 percent of lenders in Watsonville were at very high interest. Since Watsonville and Salinas share similar demographic characteristics, United Way and CSUMB want to determine how predatory lending is impacting local residents. United Way staffers Josh Madfis, vice president of community investments, and Socorro Bernal, community impact director, say annual interest rates are very high, making it impossible for clients to repay their debt, impacting their credit score and potentially losing their assets, such as a car title.
“Interest rates are ridiculously expensive,” Bernal says.
The lender Oportun currently offers cash loans at a rate of 36 percent 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 he says more action is needed.
“There are no regulations as to what rates they can charge, and therefore they are able to get away with almost anything,” Redo says.
At allU.S., by comparison, the highest interest rate for a personal loan is 18 percent. Redo says some people prefer rogue lending institutions because the process to get a loan requires less documentation, and smaller amounts are available; most larger institutions don’t make loans for under $25,000.
Mayra Perez, a Salinas resident who lives in the 93905 zip code, says last year she borrowed $5,000 – under her husband’s name, because she wasn’t working – from Oportun, to send to her dad who was ill in Mexico. A few months later, she had to move. She and her husband borrowed another $9,000 to make rent and pay their rental deposit. Perez and her husband have been paying at least $200 per month. But over the past nine months, statements show that only anywhere from $16.33 to $95.58 has gone toward the principal, and the rest to interest. As of March, they owe $8,353.22.
“[Lenders] help you out, but they are abusive,” Perez says in Spanish.
Madfis says they already have anecdotal evidence from stories like Perez’s, and now they want to collect data. He hopes the research will help to spur changes, such as instituting an interest rate limit in the city, so people can access capital without getting into “an endless circle of poverty and debt.”