Why is the UC system investing in a payday lender accused of putting people in perpetual debt?


The University of California makes money when American workers are trapped in endless cycles of high-yield debt.

That’s because the university has invested millions of dollars in a mutual fund owned by one of the country’s largest payday lenders, ACE Cash Express, which has offices across Southern California.

ACE is not a sincere citizen, even by soil feeding standards in its industry.

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In 2014, Texas-based ACE agreed to pay $ 10 million Enclose federal allegations that the company was deliberately trying to drag consumers into perpetual debt.

“ACE used bogus threats, intimidation and harassment calls to force payday borrowers into a debt cycle,” said Richard Cordray, director of the Consumer Financial Protection Bureau. “This culture of coercion has siphoned millions of dollars from consumers who have had few options to fight back.”

UC’s link to payday lending has been under the radar for about a decade. The university has never made its involvement public and is content to tacitly make a profit every year from a business that critics say is a business that takes advantage of people’s misfortunes.

Steve Montiel, a UC spokesperson, said although the university has a socially responsible investment policy and has withdrawn its money from tobacco and coal companies, there are no plans to part with the payday loan fund.

He said the university is instead encouraging fund manager, New York-based JLL Partners, to sell its controlling stake in ACE.

“You want to invest in things that match your values,” Montiel admitted. “But it’s better to get involved and raise issues than not to be involved.”

This is of course nonsense. If you’re haughty enough to sell tobacco and coal stocks, it’s not hard to tell that you shouldn’t go to bed with a payday lender.

I’m a UC graduate myself, so this isn’t just business – it’s personal. The university could just as loudly raise questions about a payday lender without making money from the poor.

The Consumer Financial Protection Bureau found that only 15% of payday loan borrowers are able to repay their loans on time. The remaining 85% are either insolvent or need to take out new loans to cover their old loans.

Because the typical two-week payday loan can cost $ 15 per $ 100, the office said; this corresponds to an effective annual interest rate of almost 400%.

Diane Standaert, state policy director for the Center for Responsible Lending, said that most questionable fund investments go around because no one knows about them. As soon as they come to light, public fund managers, especially those that promote socially responsible values, are forced to take action.

“In the case of UC, this is definitely worrying,” said Standaert. “Payday loans harm some of the same people the University of California seeks to serve.”

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At the end of September, UC had total assets under management of $ 98 billion, including its pension fund and endowments. UC’s cash is spread across a diverse portfolio of stocks, bonds, real estate, and other investments. Private equity firms hold approximately $ 4.3 billion.

In 2005, UC invested $ 50 million in JLL Partners Fund V, owned by ACE Cash Express. The fund also has holdings in dozens of other companies.

JLL Partners declined to identify its investors, however says it works with “Public and corporate pension funds, academic and not-for-profit foundations, sovereign wealth funds and other investors in North America, Asia and Europe.”

Montiel said UC made money investing in Fund V, “but we’d lose money if we suddenly pulled out.”

Thomas Van Dyck, managing director of SRI Wealth Management Group in San Francisco and a socially responsible investment expert, said UC must weigh potential losses against the effects of being associated with an “exploitative industry.” The PR hit could be more expensive than selling, he said.

The university has been on this path before. Most notably, it bowed to pressure from students and others in the 1980s, withdrawing more than $ 3 billion from companies doing business in South Africa, which was still under the apartheid system.

After Jagdeep Singh Bachher was appointed Chief Investment Officer of UC in 2014, implemented a policy To pursue “environmental sustainability, social responsibility and prudent governance”.

Rep. Maxine Waters (D-Los Angeles) convened a meeting on Capitol Hill last July to assess the impact of payday loans on low-income communities. She then wrote to UC, Harvard, Cornell, and several state pension systems asking why they are shareholders in the payday loan business through their Fund V investments.

“That is unacceptable,” she said in Your letter. These institutions should not “support investments in companies that violate federal law and whose business model depends on lending to our country’s weakest borrowers, often on predatory terms”.

She asked UC and the other companies to sell their holdings in Fund V.

Montiel said UC reached out to JLL Partners upon receiving the letter from Waters asking the company to clarify its position with ACE Cash Express. The company responded, he said, with a letter defending ACE and the role payday lenders play in low-income communities.

Since then, Montiel said, UC’s investment in Fund V has not changed. “It’s not something we ignore,” he said. “With this type of investment, things don’t happen overnight.”

Harvard and Cornell officials did not return emails asking for comment.

Bill Miles, JLL’s chief executive officer for investor relations, told me that ACE and other leading payday lenders have a bad rap.

“These are emergency loans to people who have no other option to borrow money,” he said, emphasizing that his comments reflect his personal thinking, not that of his company. “It really is the only source of funding for this community other than a loan shark.”

In 2014, 1.8 million Californians took out 12.4 million payday loans, which clearly shows that many, if not most, borrowers have taken out multiple loans, prosecutors said.

Loan sharks like to be repaid. Payday lenders don’t seem satisfied until people keep borrowing more.

Obviously, an investment of $ 50 million in a fund with a payday loan association is pocket money for UC. But that doesn’t make the investment any less sensible and doesn’t release the university from benefiting from people’s bad luck.

There’s a reason the university stopped investing in tobacco or coal. As UC says, they “don’t align” with the 10 campus institution’s values.

Payday loan?

Absolutely not.

David Lazarus’ column runs on Tuesdays and Fridays. He can also be seen daily on KTLA-TV Channel 5 and is followed on Twitter @Davidlaz. Send your tips or feedback to [email protected]


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