Essay by Eric Worrall
Apparently if it wasn’t for climate change, we wouldn’t be having so much of this hot and cold weather which is stretching household finances in California.
Climate change driving demand for predatory loans, research shows
Study connects heatwaves and cold snaps to surges in payday lending, keeping people in debt and harming communities of color
Hilary Beaumont Mon 15 Apr 2024 20.00 AEST
Two competing payday loan stores stand on the corners of an intersection in south Los Angeles. An area of persistent poverty, south LA is also a banking desert where payday lenders fill the gap. Long lines form inside the stores on the first of the month, when rent is due.
Guillermina Molina, a 60-year-old retired housekeeper, visits the same Speedy Cash each month. During the summer months – which are becoming increasingly hot – she runs her air conditioner but frets about her utility bills. “It’s kind of hard because the [power bill] is coming up too high because you gotta have the air conditioner on,” Molina said.
During heatwaves, Molina’s daughter, Vanessa Vargas, checks in on her every day. “I don’t want to pull up to her house and find her [passed out] because of the heat,” she said.
Molina doesn’t have savings, so to cover her bills she takes out a $225 payday loan every month, paying $45 in interest on each loan. When she’s unable to pay back her loan on time, she’s charged extra. “There’s nothing left over,” Vargas said.
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Read more: https://www.theguardian.com/us-news/2024/apr/15/predatory-loans-heatwaves-cold-snaps
Abstract of the study;
Extreme Weather and Low-Income Household Finance: Evidence from Payday Loans
by Shihan Xie, Victoria Wenxin Xie and Xu Zhang
This paper explores the impact of extreme weather exposures on the financial outcomes of
Read more: https://www.bankofcanada.ca/wp-content/uploads/2024/01/swp2024-1.pdf
low-income households. Using a novel dataset comprising individual-level payday loan
applications and loan-level information, we find that extreme temperature days—both hot and
cold—lead to surges in demand for payday loans. An increase in the number of days with
extreme heat results in an increase in delinquency and default rates and a reduction of total
credit issued, indicating a contraction in loan supply. These effects are especially noticeable for
online payday loans. Our findings highlight the heightened financial vulnerability of low-
income households to environmental shocks and underscore the need for targeted policies.
California has some of the most expensive energy in the USA because of their green energy policies.
Regardless of whether you believe in future climate catastrophes, and whether California’s climate initiatives will have a global impact, right now it would be more accurate to say that climate policy rather than climate change is creating financial hardship for low income Californians.
