Bill to limit payday lenders defanged
April 15, 2008
SACRAMENTO -- The California Assembly's Banking and Finance Committee on Monday significantly weakened a bill that would have slashed interest rates charged on payday loans.
Assemblyman Dave Jones (D-Sacramento) said his bill to cap interest at 36% a year would afford all California borrowers the same protections extended last year to members of the military. In response to complaints of predatory lending, Congress passed a bill that imposed that limit on loans made to Americans on active duty and their families.
But industry executives and lobbyists said Monday that a 36% rate -- a fraction of the 459% now allowed by state law -- on loans to all Californians would put them out of business.
Committee members apparently agreed, with some saying that the short-term, unsecured loans fill a legitimate need for working people who live from paycheck to paycheck and sometimes need cash in a hurry.
"I'm not interested in a prohibition," said Assemblywoman Lois Wolk (D-Davis). "At the moment, there is no alternative to the products that meet the same needs that payday lending provides."
The committee wound up approving vague language suggesting that a future version of the bill would contain some consumer disclosure provisions recommended by the California Department of Corporations.
"Mr. Chairman, the bill is getting gutted?" Assemblyman Sandre Swanson (D-Alameda) asked committee chairman, Assemblyman Pedro Nava (D-Santa Barbara).
"We're making it better," Nava replied.
Nationwide, Americans pay about $5 billion a year to borrow more than $40 billion from payday lenders. More than 1.4 million people borrowed $2.5 billion from California payday lenders in 2006, the latest year for which figures are available, according to a Department of Corporations report.
California's 2,400 licensed branches made more than 10 million payday loans, the report noted, placing the average amount at $254.
With a valid ID, proof of income and a personal checking account, California customers can borrow up to $300, which translates to $255 after a $45 fee. That fee equates to 17.6% interest for the two-week period, or 459% on an annual basis.
Source: http://www.latimes.com
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