In­ter­est rate limit doesn’t fix Cal­i­for­nia’s grind­ing poverty

The Fresno Bee (Sunday) - - Opinion - BY DAN WAL­TERS CAL­mat­ters Colum­nist CAL­mat­ters is a pub­lic in­ter­est jour­nal­ism ven­ture com­mit­ted to ex­plain­ing how Cal­i­for­nia’s state Capi­tol works and why it mat­ters. For more sto­ries by Dan Wal­ters, go to cal­mat­ commentary

Last month, the Fed­eral Re­serve Sys­tem is­sued a re­port on “the eco­nomic well­be­ing of U.S. house­holds” and it con­tained a rather dis­turb­ing bit of data.

“If faced with an un­ex­pected ex­pense of $400,” a sur­vey of Amer­i­can house­holds found, “61% of adults say they would cover it with cash, sav­ings, or a credit card paid off at the next state­ment — a mod­est im­prove­ment from the prior year.”

Turn­ing that around, 39% of Amer­i­can adults say they couldn’t read­ily cover an un­ex­pected $400 ex­pense — for a car re­pair, per­haps, or an emer­gency room visit. The sur­vey found that two-thirds of them “would bor­row or sell some­thing to pay for the ex­pense” and the re­main­der “would

not be able to cover the ex­pense at all.”

Not sur­pris­ingly, that 39% num­ber co­in­cides rather neatly — if un­for­tu­nately — with poverty in Cal­i­for­nia.

The Cen­sus Bureau says that Cal­i­for­nia has the na­tion’s high­est level of poverty when the cost of liv­ing is in­cluded in the cal­cu­la­tion, with about 20% of its 40 mil­lion res­i­dents im­pov­er­ished. The Pub­lic Pol­icy In­sti­tute of Cal­i­for­nia, us­ing a sim­i­lar method­ol­ogy, cal­cu­lates that an­other 20% are liv­ing in “near­poverty.”

It’s not a stretch to con­clude, there­fore, that the 40% of Cal­i­for­ni­ans in eco­nomic dis­tress prob­a­bly are in­ca­pable of meet­ing a sud­den $400 ex­pense — which brings us to As­sem­bly Bill 539, which passed the As­sem­bly on a 60-4 vote on the same day that the Fed­eral Re­serve re­port was re­leased.

The mea­sure, car­ried by Assem­bly­woman Monique Limón, a Santa Bar­bara Demo­crat, is aimed at curb­ing the very high­in­ter­est loans that poor Cal­i­for­ni­ans of­ten take out to meet their liv­ing costs be­cause they are un­able to qual­ify for con­ven­tional credit.

It would place a 36% an­nual in­ter­est rate cap on loans made by state-li­censed lenders, more than a third of which have in­ter­est rates above 100%, ac­cord­ing to the De­part­ment of Busi­ness Over­sight.

Such ul­tra-high rates are, a leg­isla­tive anal­y­sis of the bill says, “a rel­a­tively new phe­nom­e­non in Cal­i­for­nia,” grow­ing from 8,468 such loans in 2009 to more than 350,000 per year now, to­tal­ing more than $1 bil­lion.

Crit­ics call that “preda­tory lend­ing” that takes ad­van­tage of poor peo­ple, who of­ten lack the ed­u­ca­tion or con­sumer aware­ness to steer clear of these le­gal loan sharks. Un­able to af­ford the high payments such loans de­mand, their un­paid bal­ances are of­ten folded into new loans with high fees and in­ter­est.

Limón says she wants to af­fect the “small num­ber of lenders” that spe­cial­ize in such loans. “I’ve worked hard to find a com­pro­mise,” she told the As­sem­bly, say­ing her bill would “ben­e­fit both con­sumers and re­spon­si­ble lenders alike.”

The leg­is­la­tion, now pend­ing in the Se­nate, is clearly a sin­cere ef­fort to pro­tect the poor. How­ever, it does noth­ing about the un­der­ly­ing fact that so many Cal­i­for­ni­ans live on the edges of fi­nan­cial precipices, and turn to high-in­ter­est lenders in des­per­a­tion when cars break down, when land­lords de­mand rent, or when some other sud­den ex­pense rears its ugly head.

The bill is one of dozens of leg­isla­tive mea­sures that seek to al­le­vi­ate the ef­fects of Cal­i­for­nia’s em­bar­rass­ingly high poverty. There is, how­ever, not nearly enough po­lit­i­cal ac­tion on poverty at the source — such as build­ing more hous­ing to bring down its cost, get­ting more kids through high school, im­prov­ing skills to fill well-pay­ing jobs now go­ing un­filled for a lack of trained work­ers, and/or mak­ing Cal­i­for­nia more at­trac­tive to in­vest­ment in more jobs.

We some­times lose sight of the well-proven fact that the best an­tipoverty pro­gram is a good job.

JOHN WALKER Fresno Bee file

Rev. Floyd Har­ris Jr. leads a rally dur­ing the Cal­i­for­nia Poor Peo­ple’s Cam­paign stop in Fresno near the Poverello House on April 8 to raise aware­ness about poverty. Fol­low­ing the rally in the statewide cam­paign swing, they marched to the Fresno EOC Lo­cal Con­ser­va­tion Corps, where a pub­lic hear­ing was held.

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