California Credit Laws

California state

California – The Golden State

California is the most highly populated state in America and the third largest. The capital of California is Sacramento even though many people think that it is Los Angeles, a city that houses the most amount of people.

The Golden state has a long Pacific coastline as well as mountain ranges, forests and deserts and the Mediterranean climate contributes to the variety of geography. Many states in America have diverse landscapes but California is often considered to be the best with rainforests, deserts and snow capped mountains.

Nicknamed the Golden State after the gold rush expeditions which began in 1848, California has also been called the El Dorado of the US. The nickname refers not just to the gold mining expeditions but also to the massive fields of golden poppies that emerge every spring in this amazing environment.

California is the most highly populated  state in America and the third largest

Sitting right on top of the San Andreas fault line, Californians have become used to earthquakes. The uncertainty about when the next earthquake will hit goes along with living in one of the most beautiful parts of the US. However, the residents of this part of America have evolved into some of the most innovative and entrepreneurial people in the USA.

California is the largest US economy

California is envied for its economy which is the largest in the US. The strong economy has been compared to that of a whole country and Californians set trends that are copied all over the world. Financial growth is based on well known and wealth creating industries such as technology, film, real estate, scientific advancements, finance and government. In the San Franciscan Bay area, the population earns the highest national median income in all of the country.

Located in the area of the bay are famous conglomerates like Apple, Chevron and Pixar. And, the area is host to many conventions. The North Bay area has a thriving wine industry. Agriculture in the form of fruits, vegetables, cotton and nuts contributes around 1.5% of the economic revenue of California.

The expansion of California

The early twentieth century saw a fast expansion of the state with the arrival of many migrants who were looking for a better and more prosperous way of life. In 1900 the population of the state was less than one million and in 2017 it now stands at 39.5 million.

In 1900 the population of the state of California was less than one million and in 2017 it now stands at 39.5 million.

In order to deal with this huge increase in the population there were many engineering projects that increased the infrastructure. These projects resulted in the Golden Gate Bridge, the Oroville and Shasta Dams and a lot of major highways and freeways.

Education and employment in California

Although California has many renowned universities like Berkeley and Stanford, funding and the levels of staffing in public schools have suffered in recent years. Accusations about over regulations and not enough expenditure led to a study in 2017 which pronounced that the public school system was ‘broken’. Those students who can afford to go to the top universities go on to achieve excellent careers including medicine and law. However, these choices are not open to everyone and tuition fees cost many thousands of dollars.

There are several large sectors of employment in California with financial services being the largest. This is followed by trade, utilities and transport, health and education, government and manufacturing. Figures published in 2010 showed that California had 663,000 millionaires and residents in the state have recorded the best average credit score in the country. So, you can see that this is a state that is relatively wealthy and you might wonder why residents need to take out a payday loan.

Government buildings and the historic city hall in Los Angeles

California is like other parts of the US with many wealthy residents but also many people live from one paycheck to the next. These are the customers of the payday loan lenders. Like other states California has its own regulations relating to payday loans and the rest of this article takes a closer look at the relevant legislation.

Short term or payday loans in California

The government in California is very active in creating legislation for lending through payday loans. These kinds of loans are also known as deferred deposits transactions and the state has some of the strictest laws relating to short term loans.

During 2015, the government gave sanctions to nine lenders who were found to have operated with abusive practices.

Because of the restrictive nature of the legislation there are not as many lenders in California as in some other states and even online lenders omit to offer loans for Californians. During 2015, the government gave sanctions to nine lenders who were found to have operated with abusive practices. This is good for the customers who need to be sure that the lender they choose is ethical and complying with the laws.

Regulation of payday loans

The official regulator for payday loans in California is the California Department Of Business Oversight (DBO). The current legislation relating to payday loans is legalized under California Civil Code 1789.30 and the Financial Code 23000.

Main terms of payday loans in California

Under the current legislation, a customer may borrow up to $300 on a payday loan. The maximum finance charge is 15% of the check. However, this maximum can be applied to the total amount of the check. e.g. a check for $1,500 could attract fees up to $150 even though the sum advanced may be the maximum amount of $300. Therefore, choose a lender with care and take a long hard look at the finance charges that will be applied.

A payday loan may not exceed a term of 30 days but there is no minimum term. The highest APR that can be charged is 459% and this must include all fees and charges. Charges for borrowing $100 for a term of 14 days are capped at $17.65.

Limits of debt

Only one loan per customer per lender may be allowed at any one time. Rollover loans are illegal so customers must completely redeem the first loan before they are allowed to apply for another.

A woman is on the phone with her payday lender

If a customer is offered and charged for a rollover, the lender is operating outside of the regulations and this also applies if a second loan is taken out to pay off the first. Lenders must provide a repayment plan for anyone who is finding it difficult to make the payment.

Limits of collection fees

The maximum amount that can be charged for a non sufficient payment (a payment that bounces back) is $15 and lenders may not take out criminal proceedings against a borrower who cannot redeem the loan.

Number of lenders in California

Lenders must be licensed by the Department of Corporations. Statistics show that there has been a reduction in the number of licenses from 2,403 in 2007 to 1,969 in 2015. Current figures from Yellow Pages show that there are 3,461 store front lenders in the state and 23 online operations.

The Impact Of Debt And Payday Loans In California

As in many other states, lenders have relied upon repeated borrowing from the same group of customers with 76% of all fees and charges being applied to customers who have 7 or more payday loans each year. 60% of loans are granted to customers with 10 or more loans each year. These startling figures go to show just how difficult it is for lower income families to get out of the debt trap.

Rollover loans are considered an illegal  practice in the state of California

In California the number of borrowers who had 10 or more loans per year had increased by 11% from 2012 to 2013. The borrowers who only use a payday loan occasionally i.e. once a year, only account for 4% of the market share. Figures from the same annual report show that the average payday loan customer is aged between 21 and 40 years. Their income is between $20,000 and $40,000 and the average amount of the loan is $237.

These figures show how lenders are making most of their profits from those people who are most in need of frequent short term loans. The lesson to be learned is that payday loans can be useful as a one off event to help you through an emergency but should not be relied upon as a monthly top up to wages.

Characteristics of borrowers in California

In 2015, the total charges for interest on payday loans in California had increased as had the total amount borrowed. The amount of transactions in 2015 was down on the previous year but the number of customers taking out loans was up.

Age categories

The highest number of borrowers to use payday loans in the state are aged between 22 and 31 years. Customers aged 32 to 41 come next in line and more of the oldest portion of the population has taken on short term borrowing than the very young.

The highest number of borrowers to use payday loans in California are aged between 22 and 31 years.

Income categories

Those people who earn between $20,000 and $30,000 took up 41.23% of the total borrowing with 30% being used by those who earned $30,000 to $40,000. The less well off, who earned between $10,000 and $20,000 did not make use of this kind of loan as often making up just 17.06% of the total borrowers. And, as income increased so the amount of loans decreased with earners who received between $40,000 to $70,000 per annum using only 7.58% of the total amount of loans.

Loans taken out online

The annual report and industry survey from the California Deferred Deposit Transaction law (July 2016) showed that the most popular way to obtain a payday loan was through one of the storefront businesses with 93.4% of customers applying in person. Only 6.6% of users said that they used an online lender.

Hollywood Boulevard in the evening

In other states there has been a steady increase in the number of online lenders but the strict rules applied in California appear to have been a deterrent to prospective online loan businesses.

Rights for payday loan customers

Payday loans issued either from a storefront establishment or through an online platform are legal under the California Civil Code 1789.30 and the Financial Code 23000. If you are searching for a payday loan you can find all the lenders listed in the Yellow Pages and searching on the Internet will also give you a comprehensive list.

All short term lenders must have an official license. A written legal lending agreement must be issued and signed by both parties. This contract will state all the terms and conditions of the loan including interest rates and finance charges. Be aware that there is no cooling off period so once the contract has been signed it is enforceable by the lender.

Finding a payday loan lender

Taking out a payday loan can be helpful especially if you find yourself short of funds for an emergency. But, it is important to remember that this is an extremely high cost way to borrow and a loan of this type is only intended to be used for a very short length of time.

The state of California has programs  for people with financial hardship

Make sure that the lender you choose abides by all the state rules for payday loans. You can find a lender who will be able to provide funds within 24 hours and the best source of information is the regulator or one of the lending advice websites.

Help from the lending regulator in California

The California Department of Business Oversight is there to see that all lenders adhere and comply with payday loan regulations . If you do enter into a contract that does not keep to the regulations you can make a complaint by letter to
Department of Business Oversight,
Attn: Consumer Services
1515K Street, Suite 200,
Sacramento, CA 95814
or on their website.

The regulator will not be able to overturn charges or to award any damages but it is a valuable source of information about where to go for a legal payday loan and where to get help with debt problems.

Getting financial assistance in California

The state of California has some programs in operation for people who are experiencing financial hardship. The Cash Assistance Program for Immigrants and the Food Stamp Program can be approached if you are looking for help.

All of the regulations and rules in this article apply only to the state of California and other states may differ substantially in their own government’s approach to short term loan contracts.

About the author

Mark Larsen

Mark Larsen has worked in the finance industry for over 20 years. Over the course of his career, Mark has amassed experience in personal finance and especially short-term lending. He shares his valuable insights on onlinecreditusa.com