Payday loans trap Stanislaus County residents in debt cycles. How to break free
As the cost of living continues to rise, some Stanislaus County residents may be turning to high-interest loans to get by.
Payday loans are a popular option. They are a small amount of money lent at a high interest rate to be repaid when the borrower is next paid.
These loans typically don’t require a credit check, making them fairly accessible.
According to a 2024 report by the California Department of Financial Protection and Innovation, California’s payday lenders made more than 5.8 million loans, worth more than $1.65 billion. Nearly 60% of licensees served customers who received government assistance.
Several loan agencies can be found along McHenry Avenue in Modesto, including ACE Cash Express. Loans can also be taken out online.
Heather Basile, a member-experience manager for Modesto’s First Federal Credit Union, said nearly half of the people who come in for help are caught in a payday loan debt cycle. She noticed that most people are taking out payday loans for everyday expenses, like bills, rent and car problems.
One recent client had taken out several loans to help save the family pet, Basile said. Another had put everything into cryptocurrency.
“When you’re already living paycheck to paycheck, when you have an emergency … you kind of don’t have a choice,” Basile said. “And if you don’t have perfect credit, a lot of times it’s really difficult for people to have any other alternative.”
Because borrowers must pay back the loan all at once from their next paycheck, many are left short on income and unable to meet other household needs. That can lead them to immediately take out a new loan.
“Unless they have an extra $300, they don’t get out of that cycle without help,” Basile said.
According to the CDFPI report, the majority of individuals taking out payday loans are ages 32 to 41. Basile said she sees mostly young people get caught in payday loan cycles in Modesto.
Assembly Bill 2558, introduced in February, proposes capping interest rates on payday loans at 36% annual percentage rate in California.
APRs are a way of measuring how much the loan will cost in interest over a year. For example, someone borrowing $300 with an average APR rate of 372% might end up paying back $1,116 in that year, in addition to loan fees.
A 36% APR cap is the same limit for lending to military service members and rate caps in several other states.
“Too many Californians are struggling with a serious affordability crisis,” bill co-author Assemblymember Marc Berman said in a press release. “The predatory payday loan industry is making this crisis worse by trapping Californians in a cycle of reborrowing, raking in huge profits off of their hard-earned wages that they need for rent, groceries, medical care, and other basic needs.”
Labor leader and civil rights activist Dolores Huerta has also backed the bill.
Previously, the California Legislature has buried at least five bills intended to crack down on predatory lending.
In 2019, Assembly Bill 539 passed, which caps interest rates at about 36% plus the federal funds rate for loans between $2,500 and $10,000. However, it did not apply to standard payday loans, which have a maximum loan amount of $300.
High cost of living impacts all
Evan Duran, a 30-year-old platform developer from Salida, was facing $28,000 in debt from credit cards, plus some federal and private loans.
A majority of the debt was from while he was studying computer science at Stanislaus State University. For a while, his dad was helping him pay for food and gas, but he ended up dying from cancer.
Late last year, the nonprofit Money Management International worked with Duran’s creditors to reduce his interest rates to about 7% and consolidate his payments. Duran also began using a spreadsheet to track his spending, and he is forgoing credit cards.
Now, he’s saving up for a wedding.
Duran said high-interest loan lenders can be exploitative and predatory. “It’s kind of like those mob boss shark loans with how ridiculous the interest rates are,” he said.
Heather Pearson Villeda, director of basic needs at Stanislaus State University, said many students encounter unexpected expenses or timing gaps between their bills and income. Even with income from work and student loans, they might be in a tight spot financially.
“It’s just the realities of income and cost pressures that are facing people right now that there’s very little room for unexpected things or for disruption,” Villeda said.
Since Stanislaus State is largely a commuter school, a sudden flat tire could severely impact a student’s education and financial situation.
Senior citizens on fixed incomes are also a target.
Bryon Nelson, an attorney with the Senior Advocacy Network, said even small debts with high interest rates can quickly become unmanageable for seniors.
“In my experience, more attention should also be given to financial vulnerability factors such as fixed income status and age, which are central to understanding the risks faced by this population,” Nelson said.
He is a proponent of continued consumer financial protection efforts in California to help prevent older adults from falling into harmful debt situations and to support financial stability.
Keristofer Seryani, president and chief executive officer of United Way of Stanislaus County, said he’s seen a big uptick in residents using its 211 service — a free information and referral service for basic needs available 24/7.
Most people are calling for rental and utility assistance services, of which the county has a shortage. Many callers are single mothers and seniors on fixed incomes.
“The conception that people have of who’s hurting is not the ones that are lazy, sitting on the couch,” Seryani said. “It’s people who are doing everything they possibly can to survive and still falling short because the systems are not there to support them.”
Breaking the cycle
Basile suggests going through your bank statement to see what all your monthly expenses are. She said most people just account for their top bills, like rent, but forget about the smaller expenses that rack up.
If you’re in a bad financial situation or had a recent emergency, Basile suggests calling creditors to explain your situation first instead of jumping to take out another loan. Some creditors have hardship programs or other ways to support.
“It’s hard for them to make that phone call, but telling them your issue first … is a great way to get either a lower interest rate, a lower payment, or even just some grace,” Basile said.
For safe loans, Baisile recommends people reach out to their financial institutions or go to local credit unions, particularly community development financial institutions. Many receive grant money to help people who are cash-strapped or low-income.
Modesto’s First Federal Credit Union offers deposit-based lightning loans, up to $2,000 to be repaid over 12 months, to help its members get out of the payday loan debt cycle, regardless of their credit score.
United Way operates a year-round free tax preparation service. During the off season, it completes returns for individuals who haven’t filed for years and need to get caught up. This year, the organization filed 704 tax returns, putting nearly $1.4 million back into the community through refunds.
Seryani said there are federal and state tax credits that many people may not know of, such as the earned income tax credit and the young child tax credits for working families.
“They often don’t know where to go to get their taxes done, so they go to someone that may have ill repute or take advantage of them or not be able to give them the full credit they’re owed because they don’t know any better,” Seryani said.
At Stanislaus State University, students can receive application assistance for CalFresh or Medi-Cal and emergency grants for housing assistance or unexpected costs.
The financial aid team also provides financial wellness workshops on credit management, budgeting and student loans. It also helps students who may have a low credit score find housing.
Villeda said she also helps students who are considering opening a credit card weigh their options and will assist in talking with PG&E or the Modesto Irrigation District to discuss payment plans.
“There are a lot of understandable concerns around student loan debt, and we have really great colleagues that can help break that down,” she said.
