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.
Post-dated checks are held until a borrower's payday, usually every two weeks, and are passed on to the bank if the loans are not paid off by then.
The Department of Corporations report said that the demand for payday loans in California was high, with borrowers averaging seven loans each in 2006.
