Unforeseen circumstances – a sudden illness or an eviction notice – can leave low-income families in a predicament: get the short-term cash to stay afloat, but risk being caught by predatory lenders.
People trapped in these inescapable credits are mostly minorities, undocumented immigrants, often have no (or bad) credit histories, or lack financial education, according to experts.
Beginning March 14, United Way Monterey County and CSU Monterey Bay began conducting surveys of lending services in Salinas, specifically in the 93905 and 93906 ZIP codes.
Her project is based on local investigations in Santa Cruz conducted in 2018 by Mamás con Más, Santa Cruz Community Ventures and the UC Santa Cruz Blum Center. The research found that 76 percent of lenders in Watsonville were very interested. Because Watsonville and Salinas share similar demographics, the United Way and CSUMB want to determine how predatory lending is affecting local residents. United Way employees Josh Madfis, vice president of community investments, and Socorro Bernal, community impact director, say annual interest rates are very high, making it impossible for customers to repay their debts, affecting their credit ratings and potentially their wealth loses, such as a car title.
“Interest rates are ridiculously expensive,” says Bernal.
Lender Oportun is currently offering cash advances in Salinas at an interest rate of 36 percent.
Patrick Redo, CEO of allU.S. Credit Union in Salinas, notes that the matter has gone to Congress to seek regulation of so-called payday lenders, but says further action is needed.
“There are no rules about what fares they can charge, so they can get away with just about anything,” says Redo.
In comparison, the top interest rate for a personal loan in the United States is 18 percent. Redo says some people prefer fraudulent lending institutions because the process to get a loan requires less documentation and smaller amounts are available; Most major institutions will not lend less than $25,000.
Mayra Perez, a Salinas resident who lives in the 93905 ZIP code, says she borrowed $5,000 — under her husband’s name because she wasn’t working — from Oportun last year to send to her father, who is in Mexico was sick. A few months later she had to move. She and her husband borrowed an additional $9,000 to pay the rent and pay her rent deposit. Perez and her husband pay at least $200 a month. But over the past nine months, statements show that only anywhere from $16.33 to $95.58 has gone to principal and the rest to interest. As of March, they owe $8,353.22.
“[Lenders] help you, but they are abusive,” says Perez in Spanish.
Madfis says they already have anecdotal evidence from stories like Perez’s, and now they want to gather data. He hopes the research will help drive change, such as B. Imposing an interest rate cap in the city so people can access capital without falling into “an endless cycle of poverty and debt.”