Protections needed against predatory lenders during COVID-19

Communities across the state are reeling from the impacts of the COVID-19 crisis as millions of people are losing jobs, struggling to access health care and falling behind on their bills. Some businesses are taking advantage of people’s desperation for cash by hocking risky loans and products that could exacerbate their financial woes.

A recent Wall Street Journal investigation uncovered marketing pushes from shady financial firms — some based here in California — offering high-cost loans to consumers affected by COVID-19. Companies called lead generators are targeting vulnerable consumers and connecting them with lenders to sign them up for pricey loans. Unfortunately, some borrowers don’t learn until later that they’re going to be charged triple-digit interest rates that they cannot afford.

This predatory behavior is unacceptable at any time — but it is especially outrageous given the economic precarity of California households. That’s why it’s critical for state lawmakers to support Gov. Gavin Newsom’s proposal to strengthen California’s oversight of the financial industry.

After the 2007-08 financial crisis, as many Californians were pushed into foreclosure, bankruptcy and poverty by indifferent banks and lenders, government leaders failed to act swiftly to preserve household stability and family wealth. In the time between the start of the foreclosure crisis and the passage of the California Homeowner Bill of Rights in 2012, many families were unnecessarily displaced and struggled to recover from the loss of their main source of wealth.

During this same period, the already-large wealth gap between white households and black and Latino households increased. Indeed, many communities struggling from years of exploitative and discriminatory lending had not fully recovered from the impacts of the last crisis before COVID-19 hit. Now these communities are bearing the burden, once again, of insufficient consumer protections and incomplete government support at a time when they need it most.

Facing new economic pressures, the Newsom administration and state Legislature must make difficult choices as they seek to pass the state’s baseline budget by June 15 and make additional revisions before the end of August. However, state leaders must look beyond the immediate legislative deadlines to consider which public investments they should make right now, in order to insure against a deeper, longer-lasting crisis for Californians down the road.

This year, we have the opportunity to act with foresight — with hard lessons learned from the last financial crisis — by creating a robust consumer protection agency as part of the state’s 2020-21 budget. The governor’s proposal to create the Department of Financial Protection and Innovation would augment the state’s financial regulator (currently called the Department of Business Oversight) so that it has the tools and resources to monitor companies that are currently evading oversight, such as debt collectors, credit reporting agencies and tech companies marketing alternative loans. It would also establish outreach offices to engage with and address the needs of particular communities such as students, veterans, elders and immigrants. And it would have more resources to halt illegal behavior and return money back to people’s pockets.

Best of all, it would be able to achieve all this without any impact to the general fund by unlocking an existing reserve fund already in the regulator’s coffers. The proposed DFPI would position California as a leader in protecting and supporting consumers, small businesses and communities struggling to recover from the financial fallout of the COVID-19 pandemic.

We urge Newsom to continue pushing for the DFPI proposal as part of the budget this year and for other state leaders to support this effort. If we fail to act immediately, we may be enabling the ugliest impacts of this economic crisis to deepen the pain so many California residents are experiencing as they struggle to endure such an unprecedented time in our state’s and our nation’s history. Suzanne Martindale is a senior policy counsel and the western states legislative manager for Consumer Reports.