Financing an Equitable Economy in Los Angeles

First in a series, “A Sustainable Economy Rises in Los Angeles.”

BY JANE PAUL | May/June 2018

This article is from Dollars & Sense: Real World Economics, available at

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The owners of a popular East Los Angeles taco truck need new cooking equipment and a more attractive sign. The proprietors, husband and wife, visit a trusted community organization for an honest session of personalized problem-solving, and they come away with a low interest loan of $7,500 that allows them to sustain their enterprise.

Things rarely go so well for small business owners in the economically struggling communities in Southern California similar to East Los Angeles, where per capita income is less than $15,000 a year. Traditional mainstream banks would not offer a loan to these small entrepreneurs, and community development finance institutions may only offer micro-loans at interest rates between 9% and 18% (plus fees), which can be unaffordable, and frequently have requirements for credit and documentation that exclude many small business proprietors. The remaining financial institutions are storefront payday lenders who extend loans requiring no collateral, but with interest rates that averaged 372% in California in 2016, and which often result in trapping borrowers in a cycle of debt. Many predatory neighborhood lenders (payday, car-title, and installment-loan storefronts) offer loans at high interest rates, garnish wages before the borrowers can cover basic needs, and create a debt trap, as customers must borrow repeatedly, merely to repay their initial loan. “The city of Los Angeles has the highest number of payday lenders in the state, with about 800 stores found mostly in communities of color,” says Los Angeles County Supervisor Hilda Solis. Without access to other reliable options, small family enterprises cannot build credit, maintain month-to-month financial security, survive fluctuating business cycles, or grow.

Providing loans for small business and families was once a significant part of banking in the United States, but the last few decades have seen a steep decline in the availability of banking services. As regions like Los Angeles deindustrialized, and incomes in working class neighborhoods declined, the big banks left L.A.’s struggling communities, creating a gap in access to financial services. Currently, the most convenient services, and frequently the only ones, are the predatory lenders. USC’s Neighborhood Data for Social Change states that almost 600,000 L.A. County residents do not have access to a single bank. Payday lenders, installment-loan, and car-title lenders prey on these unbanked low-income communities, charging exorbitant interest rates—typically, $15 per $100 borrowed, or the equivalent of an interest rate of at least 300% a year. Loans are made without consideration for the frequency of borrowing, or the ability of the customer to manage the payments.

First in a series:

An Equitable Economy Rises in Los Angeles

This new article series tells the story of local and regional efforts to build a robust and participatory alternative to the current economy. Southern Californians struggle with stagnant wages and lack of ownership, opportunity, and voice. Labor is extracted at too high a cost to our mutual well-being, and earnings fail to support healthy, dignified lives. We explore alternatives that provide a pathway to regaining the power of production and restoring democracy in the workplace, marketplace, and community. Some of these options are age-old and some are so new that they are not yet fully formed, but all meet at the confluence of a better tomorrow.

In response to the needs of our communities, individuals and working families, an alternative equitable economy is emerging, orchestrated by a growing army of change-makers who are building viable options for a Los Angeles that is ready to construct and cultivate equity. These contributors are versed in worker ownership, microfinance, community wealth building, shared equity models, and principles of economic democracy. Alternatives to predatory lenders, low wages, housing instability, and economic insecurity do exist; options for working class people that invite authentic, knowledgeable, and empowered participation in the economy.

People interact with an economy not through the rise and fall of stock market prices or interest rates set by the Federal Reserve, but through their everyday financial transactions and obligations—making paychecks last, keeping a small business resilient through tough times, and striving to hold onto secure housing in a competitively market-driven city. The economy that many Angelenos know personally and deeply is manifested in the struggle to meet food, rent, transit, and healthcare bills. The pressing question of how to change these all-too-common dire scenarios may be answered in part by the actions of advocates for a democratic economy, who are working to build hope and regain kinship in workplaces, housing choices, and financial opportunities.

Bank mergers and consolidations, racialized policies such as intentional closing of branches in communities of color, and practices that created disparity in financial access and opportunity along race and income lines have resulted in a vacuum of financial choices in South Los Angeles, East Los Angeles, and other struggling areas. The few banks that remain, or large mainstream banks in other communities, simply won’t make a small loan to an independent entrepreneur without significant collateral, a credit record, or a permanent business address.

Alternatives do exist—but increasing the size and viability of a growing sector of new financial services in low-income communities is an effort that needs both public support and greater community awareness. New programs such as lending circles (a traditionally kin- or peer-based rotating system), progressive and innovative banking establishments, credit unions, and community organizations that make microloans at 5–8% interest are less known, but they create powerful local value by building and regenerating communities, rather than extracting wealth from them through high interest rates or service charges.

Credit unions, for example, are member owned. They have the good of their communities at heart when they offer lower interest rates and less punishing fees than the big multinational banks: More local success means more members, more dollars spent in the neighborhood, and a more stable community base of customers. Big banks earn a large portion of their profits (up to $6 billion a year nationally) from the fees paid by customers to keep an account open, to access credit, and to use money transfer and check writing services. Local and regional credit unions are able to offer the same services as the banking giants, but as non-profits, they don’t serve the shareholders before the customers and members, and they can prioritize supporting the financial health of local businesses and residents. Self Help Federal Credit Union, a recent arrival in the L.A. area, and Amalgamated Credit Unions consider equity and social responsibility in their expanded local services, but could build more storefronts to increase their presence in the region. Community development finance enterprises are also not-for-profit and offer various forms of credit services, but are restrained by their own capital access, and requirements such as debt-to-income ratios and documentation.

Lending circles are another model for developing local financial possibilities. Trusted community-based organizations such as East Los Angeles Community Corporation (ELACC) and the Pilipino Workers Center have established lending circles, where a group of community members meet regularly to offer communal support in order to lend and borrow money on a rotating basis at 0% interest. Los Angeles’ lending circles were launched with the partnership of the Mission Asset Fund, which provides the technological platform, along with access to financial education and loan and credit reporting services. These lending circles give members an organized venue from which they can borrow for an apartment deposit, for a small investment in a cottage business, or for college tuition payments; and, importantly, participating members then earn a credit rating: a legitimate foothold in the previously unreachable financial marketplace.

Other small businesses, like the family-owned taco truck, are turning to community development and urban planning organizations such as the Leadership for Urban Renewal Network (LURN) and ELACC. Their models are gaining in strength and visibility, although there are obstacles for these community-based economic justice advocates such as limited funding for the organizations’ finance initiatives. These initiatives strengthen the local economy, creating jobs and vitality while money is kept within communities and neighborhoods, instead of allowing transactions to enrich only for-profit corporations and their privileged investors. Rudy Espinoza of LURN says that one of the great joys of their lending programs is “investing in a hard-working person who may not have another shot.” The objective is to provide Angelenos a foundation from which they can build financial mobility.

Public, state-owned, and municipal banks have the potential to service tiny businesses, lessen debt burdens, and advance generative lending practices, but they need favorable legislation to grow stronger and more accessible. The State of Washington and the City of Los Angeles have public banking bills proposed, and multiple regions are watching the process carefully. Organizations such as the California Reinvestment Coalition (CRC) advocate for policies that regulate bank practices, protect consumers from unscrupulous lending, and provide crucial data and real life stories to the media. CRC is building networks of grassroots partners to support financial alternatives, utilizing local commitments and regional political leverage. Legislators in California have been reluctant to follow the lead of 14 other states in outlawing predatory lending practices, for fear of leaving impoverished neighborhoods with no choices, as well as facing down the influences of the powerful payday lending lobby. Legislation as well as efforts in the philanthropic and impact investment sectors could also benefit alternative financial institutions by allocating resources to build capacity and education, and to learn how the creative options discussed above are beneficial to families, small business, and individuals. The alternative economy has these attributes at its heart: solidarity, participation, and autonomy. For example, solidarity is in evidence as community-based organizations in low-income areas establish lending opportunities in local circles of kinship, mutual trust, and benefit. Participation is in evidence in the growing numbers of individuals united in shared investment and decision-making entities such as cooperative workplaces and cooperative housing structures. Local autonomy is in evidence in newfound freedom from the exclusionary practices of mainstream banks and from traditional hierarchical workplaces, in the self-sufficiency of community sharing of resources, and in the long-standing traditions of mutual care.

As we work to extend the reach of these emerging alternative economic efforts, we are able to create stronger community bonds, build well-being, and activate new participants toward the goals of equity and stability. We can and will show the power of innovation, resilience and solidarity. If this sounds wildly hopeful, it is. But at this very moment, individuals, communities and organizations are working together to build these tangible and tested alternatives. The taco truck family is a genuine Angeleno family, for whom new opportunities and possibilities await.

is a teacher, writer, and community activist. She teaches urban studies, alternative economies, and urban sustainability at Antioch University Los Angeles.

“California Reinvestment Coalition Respond to Troubling New Report About Payday Lending in California,” California Reinvestment Coalition, July 7, 2017 (; “Bank Deserts: Nearly One in Five L.A. County Neighborhoods Lack Banks or Credit Union,” Neighborhood Data for Social Change, Nov. 27, 2017 (; “A crackdown on predatory payday loans,” Los Angeles Times, Oct. 9, 2017 (; Alicia Adamczyk, “America’s 6 Biggest Banks Collected $6 Billion in ATM and Overdraft Fees in 2015,” Time, Jan. 15, 2016 (

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