Curbs Needed On the Payday Loan Lending Industry

Mercury News editorial: If state won’t ban predatory payday lending, cities and counties must restrict it

Condemning lobbyists’ influence in the state Capitol, a large group of California leaders on Monday called for curbs on payday lending to better protect consumers from the spiraling debt that accompanies the triple-digit interest rate loans. This reaction comes after a Bay Area News Group investigation outlined the hazards of payday loans and the industry’s warm reception in Sacramento.


California growth

Payday loans, which burden the working poor with annual interest rates as high as 460 percent, have grown in California, even as 17 states and the U.S. military have effectively banned the cash advances on paychecks. In contrast, state lawmakers here are now pushing a bill to expand lending amounts and fees, while accepting ever-more campaign contributions from payday lenders.



On Monday, however, two state senators joined Insurance Commissioner Dave Jones in calling for stepped-up regulations on payday lenders, either through a ballot measure or new legislation. “People are forgoing food, clothes or transport in order to pay back these loans,” Jones said. A former Assembly member, Jones said he introduced a bill in 2007 similar to those in other states that cap interest rates at 36 percent because “the evidence was really compelling that the rules needed to be changed in California.”


Call for a cap

Two senators who sit on the committee that will soon hear the industry-backed bill to expand payday lending agreed with Jones that interest rates need to be capped. A growing number of skeptics are joining consumer advocates in efforts to protect low-income borrowers from the debt trap that often accompanies payday loans. Lt. Gov. Gavin Newsom told this newspaper in April that curbing the industry was one of his top priorities and that he was in discussions about a 2012 ballot measure to bypass the Legislature. “These guys just buy us off,” Newsom said at the time.


At local level

San Jose Councilman Ash Kalra said he will push for a payday lending moratorium as soon as the city’s staff completes a study on payday lenders. And Tuesday, the East Palo Alto City Council will discuss ways to limit the lenders from coming to their small, working-class town. Cities and counties can’t limit interest rates, but they can use local land-use and permitting laws to curtail new businesses and restrict their scope. Many local efforts are receiving funds from the Silicon Valley Community Foundation, the largest funder of Bay Area nonprofits. The foundation has directed almost $1 million to anti-payday lending campaigns, which include stepped-up local rules.


The lenders

Payday lenders argue they are already adequately regulated in California, where loan amounts have been capped since 1996. A pending bill by Assemblyman Charles Calderon, D-City of Industry, would increase limits on payday loans from $300 to $500, increase one-time fees from $45 to $75. Interest rates on the typical two-week loan are calculated on an annual basis, which amounts to 460 percent. But lenders have limited recourse to go after delinquent borrowers, and cannot pursue criminal charges.

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