Two Key Consumer Bills Killed

Two of the most far-reaching consumer protection measures in the Capitol this year--bills to combat identity theft and to rein in the “payday loan” industry--met a sudden death Tuesday amid vigorous opposition from business lobbyists.

Both were killed in a matter of minutes by the Assembly’s Banking and Finance Committee.

Considered the linchpin of efforts to combat identity theft in California this year, legislation by Sen. Debra Bowen (D-Marina del Rey) would have slowly phased out the use of Social Security numbers as identification numbers. The bill also would have allowed consumers who suspected that someone had stolen their identities to freeze access to their credit reports.

Needing eight votes to pass, the measure died after a 2-1 vote, with most committee members failing to take a position. Opponents had blasted the bill as cumbersome and expensive.

“Today was a great day for credit bureaus and a bad day for regular people,” Bowen said. “Basically, this leaves people who have been victimized by identity theft to go through years of intense work to stop the bleeding in their accounts.”

The other consumer bill, sponsored by Sen. Don Perata (D-Alameda), would have cut the large interest fees charged by providers of payday loans, short-term advance payments made typically by check cashing businesses that critics call legalized usury.

Perata’s bill was one of two dueling pieces of legislation--one supported by consumer groups, another backed by the check cashing companies that provide payday loans--that were wending their way through the Legislature. Opponents said Perata’s bill would spell doom for the booming payday industry, ending a critical source of short-term financing for the poor.

“I thought I was one or two votes away from having it, but the lobby is just too big,” Perata said. “I am frankly disappointed I did not have more Democratic support.

“This bill and Debra’s bill were really the two big consumer bills of the year,” he added. “We [Democrats] are turning our back on the people that put us here, the working people.”

Numerous organizations, from banks and health care providers to public and private colleges, use Social Security numbers to keep track of clients and place the numbers on routine paperwork and identification cards.

Consumer groups say that practice must be stopped because it makes the numbers easy prey for thieves looking to pilfer personal information for financial gain.

The groups also argue that one of the most frustrating aspects of identity theft is that its victims often learn their financial information has been breached, but are powerless to protect themselves. Freezing access to credit reports, they say, would make the crime more difficult.

But a wide array of opponents--from Aetna U.S. Healthcare and the California State University system to the credit bureau Experian--lobbied intensely against both of those elements in Bowen’s bill, SB 1767. They argued that blocking access to credit reports actually would increase the potential for fraud, and that forcing organizations to create new identification numbers would be phenomenally expensive.

“It’s a major setback for prevention of identity theft, and victims of identity theft,” Bowen said. “Companies will continue plastering Social Security numbers everywhere. I think we turned our backs on the issue of identity theft today. But it’s not going away.”

All indicators point to a worsening identity theft problem nationwide. Last year, the Social Security Administration received more than 30,000 reports of misused Social Security numbers--triple the number of a year earlier. Similarly, the Los Angeles Police Department saw its identity theft caseload double last year, to more than 3,000.

Since being legalized in California four years ago, the payday loan industry has mushroomed in the state, particularly in low-income minority communities underserved by traditional financial institutions.

But with its increased popularity has come a chorus of complaints from consumer groups, who contend that the payday loan business is little more than a legal loan-sharking operation that preys on poor people.

Payday loan purveyors can legally charge annualized interest fees that amount to as much as 911%, and there is no system in place to prevent desperate people from getting advances in several outlets at once. Many customers, critics say, take out one loan to pay off another, and soon find themselves hopelessly engulfed in debt.

California has not collected any information on the industry and its customers to determine whether they can reasonably afford the rates they are charged.

Perata’s bill, SB 1501, would have capped the interest rates, and forced the industry to obtain licenses and file reports with the state Department of Financial Institutions. It also would have prevented the businesses from loaning out more than 25% of a person’s check, and forced the firms to establish partial payment plans for customers to escape the cycle of debt.

Backed by payday loan providers, a competing bill by Assemblyman Herb Wesson (D-Culver City) would place far softer restrictions on the industry.

Arguing that its very future in California was at stake, the payday industry responded by hiring numerous top lobbyists in the Capitol this summer. Citing that onslaught, and what he called a new timidity on the part of legislators brought on by term limits, Perata said he understood the bill’s failure.

But he vowed to bring it back next year, hoping a certain development in Washington boosts his chances: Connecticut Sen. Joseph Lieberman, Al Gore’s choice for vice president, has been a leading critic of payday loans.