Predatory practice

The California Reinvestment Coalition advocates for the right of low-income communities and communities of color to have fair and equal access to banking and other financial services. Find more information at

The practice of payday lending—where short-term loans are offered at sky-high interest rates to people who run short of cash before payday—has been getting more scrutiny these days. It’s about damn time. The industry has always been an exploitative one because it tends to snare those (especially low-income and young people) who don’t understand that high-interest rates are likely to trap them in a never-ending cycle of debt.

Increasingly, state governments have attempted to shield people from these lenders by imposing caps on interest rates or by banning the practice outright. Fifteen states now have bans—California is not one of them, though it has placed limits on loan amounts. Unfortunately, Sacramento has more payday-loan storefronts than most cities in the state.

Recently, we’re seeing a new development in this saga: Payday lenders have increasingly been setting up shop online from bases in the Bahamas or other foreign locales. As recently revealed in The New York Times, major banks—like Bank of America, JPMorgan Chase and Wells Fargo—have actually helped these Internet-based lenders do a regulations runaround by allowing online payday lenders to tap borrowers’ checking accounts regardless of state rules or bans.

A few weeks ago, Assemblyman Roger Dickinson, now chairman of the Assembly’s Committee on Banking and Finance, held information hearings on the subject. Good questions were asked; much was revealed about a business in need of serious inquiry. Let’s hope the hearings lead to closure of unlicensed online lenders, a clampdown on the banks that have been aiding and abetting them, and more scrutiny, in general, on this predatory practice.