Giving Truckers Better Loans Can Lower Carbon Footprints: Here’s Why

underwriting carbon footprint

Of late, California’s emissions standards have become a source of some controversy as the state’s ability to set emission standards for cars and trucks that are higher than the standards imposed by the U.S. Environmental Protection Agency has been questioned by the Trump administration.

The state was first granted an initial waver on the Clean Air Act in the 1970s, mostly because the state was undergoing an air quality crisis at the time and was granted the ability to set higher standards to combat this environmental problem. That waiver has been periodically expanded and renewed every few years, most recently in 2013, when it received a permit to impose its greenhouse gas and create its zero-emission vehicle program.

But in mid-September, the Trump administration announced its intention to rollback that waiver and bring California’s emissions standards into line with EPA standards.

The issue is complicated for a variety of reasons. Because Californians purchase more cars per year than any other state (and more than a few small states combined) —  its emissions standards tend to exert much indirect influence. Most auto manufacturers make 50 state models of the cars they sell — which means California’s emissions standards often become the de facto standard for new vehicles built and brought to market. Moreover, 13 other states and the District of Columbia have also adopted California’s emissions standards — and those states, plus California and nine other states that have not as yet adopted California’s emission standards but plan to, have now moved the matter to federal court to get a judicial ruling on whether this kind of rollback by executive action is even legal.

The fight, which promises to roll into 2020 and could very well end up being decided by the Supreme Court, has passionate advocates on both sides. Defenders of California’s long-standing, higher than the federal standard emissions rules note that the goals of the program are an achievable bar and one premised on the extraordinarily important goal of creating breathable air.

“California’s Clean Car Standards are achievable. They not only work, many other states around the country have chosen to adopt them,” California Attorney General Xavier Becerra said in a statement.

But proponents of rolling back regulations like Transportation Secretary Elaine Chao noted that the higher standards make vehicles more expensive and thus were keeping older, less clean and less safe cars on the road longer because consumers and businesses can’t afford to replace them.

The issue is challenging, Opportunity Fund CEO Luz Urrutia noted because it this isn’t necessarily a case of trying to pick between a good thing and a bad thing — so much as it is a case of trying to promote two different good things that might, at least on first glance, seem to be facing off in opposition.

Clean air standards are inarguably a good thing, she noted, in California in every place else. But good things can create real hardships for people, and in California’s case, those clear air standards have hit independent truckers particularly hard.

“This law, while enormously beneficial to public and environmental health, meant that many independent truck drivers would have to cease operating if they could not afford to retrofit or replace their trucks,” Urrutia noted.

But the question shouldn’t be about how to decide between these two things — but how to provide for them both. That’s why, she noted, the Opportunity Fund in 2012 created a low-cost lending program for independent truckers to provide them with the funds to either retrofit their existing trucks into compliance with the state’s regulations, if possible, or to put a down payment on a new vehicle if not.

Nearly eight years later and on the eve of the state’s 2020 deadline for bringing emissions down statewide by 85 percent from 2010 levels, Opportunity Fund has loaned over $220 million across roughly 4,500 loans, saved independent truckers around 21 percent in loan repayment fees and removed the greenhouse gas emissions equivalent 620,000 cars from the state’s roads.

“The impact of these loans stretches well beyond our borrowers. It ripples through the economy, the air we breathe and the communities that you and I call home,” Urrutia said, noting that according to a recent report on the lending program, it estimates the loan program has been responsible for over $470 million in additional annual downstream economic activity in California.

A 2016 analysis conducted by economic research firm TXP also found that for every dollar Opportunity Fund lends to a long-haul trucker, an additional $2.14 is created in the economy in the form of new wages, new spending and additional tax revenue.

And the loans are for relatively small amounts to make such a sizeable downstream difference. Opportunity Fund offers truck loans for as little as $2,500 and as much as $200,0000 — but the average loan it underwrites is for about $48,000. That comes with a 24- to 60-month term at a 12 percent to 16.5 percent interest rate, far below the industry average where the APR on loans typically starts north of 20 percent.

That is, if they can find a loan at all, which can be extremely challenging since most truck drivers fall squarely into demographics that are consistently underserved by mainstream financial markets. The vast majority (78 percent) come from low- and middle-income households, with low-income households outnumbering middle-income households 2-1. The industry also has a much higher than average proportion of recent immigrants to the U.S., particularly from South and Central America and Southeast Asia. And while they tend to have solid near-prime credit — as a group, they just miss the all-important 700 hundred mark with an average credit score of 673.

Ultimately, according to the data, the vast, vast majority of these borrowers turn out to be solid, stable prospects.  They are taking out a loan to operate their business, to be economically productive. As a result of that, over the last eight years, the fund has seen repayment rates of 93 percent among borrowers.

Reliable and responsible, she noted, but often excluded from services like bank loans at a reasonable interest rate. That means when independent truckers are faced with an expensive problem like emissions standards, they find themselves stuck between two bad choices: Go out of business for lack of ability to adapt or take a predatory loan that risks driving them out of business when they can’t afford to pay on it. And just as helping truckers stay in business has net positive downstream effects, she noted, the opposite is also true. The communities where independent truckers live and work are out of the tax revenue and consumer spending when truckers are either going out of business or trapped under piles of debt.

And if it can work in California, she noted, they believe it can work elsewhere, which is why as of the end of 2019, the Opportunity Fund has begun to expand its truck-lending program nationwide.