The challenges faced by the California Department of Business Oversight in policing illegal lenders focuses needed attention on the challenge facing many Californians: Where can they turn for a legitimate, small-dollar loan when they need one?
With very limited options, far too many wind up in dire situations with illegal, unregulated lenders, many of them on the Internet.
For several years now, members of the California Consumer Finance Association have been warning about the steady growth of unlicensed, unregulated and illegal financial services, especially on the Internet. Many are based outside California or overseas, beyond the reach of state regulation, and subject consumers to exorbitant costs and extreme financial risk. We fully support the department’s ongoing efforts to crack down on them.
Our member companies offer a range of legitimate financial services – including payday loans – under state regulations that limit fees, require clear posted guidelines and tightly restrict collection practices and access to consumer accounts. These regulations work and protect consumers.
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To understand why there is a problem with unlicensed, unregulated credit, just take a look at the consumer financial marketplace today. Demand for credit continues to grow, but consumer credit laws in California have not kept up with that demand. Programs established by lawmakers for loan amounts larger than $300 have failed because they set unrealistic terms that cannot work for consumers or lenders or both. The result – more consumers turn to unlicensed lenders on the Internet with no protections.
We applaud the department for its tireless work in fighting the result of this problem. But, at the same time, we urge lawmakers to act to help eliminate part of the cause. They need to create a sorely needed, legitimate program for small-dollar credit, with rates and terms that can truly work in the marketplace for both consumers and lenders.
California’s consumers will continue to need and obtain credit. That demand will not end. If the state does not finally create a practical, legitimate program with terms that can succeed, many consumers will just continue to have little option but risky, unregulated lenders.
Natasha Fooman is president of the California Consumer Finance Association.