Legislators Keep Hands Off Consumer Issues

A funny thing happened in the Assembly Banking and Finance Committee in Sacramento last week, but the joke seems to have been on the state’s consumers.

Two important consumer bills--one by Sen. Don Perata (D-Alameda) to stem the excesses of “payday advance” lending, the other by Sen. Debra Bowen (D-Marina del Rey) against identity theft--were killed with only three of the committee’s 14 members casting any votes at all.

The Perata bill never even came to a vote. It died for lack of a second. The Bowen bill died after securing only a 2-1 vote when eight votes were needed for passage. Both bills had won in the full Senate.

With the payday bill especially, there are suggestions that, before the end of the present session in two weeks, it may be revived as a compromise with a pro-payday bill by Assemblyman Herb Wesson (D-Culver City) that died for lack of votes in the Senate the same day.

But, in the meantime, it is appropriate to ask: What is going on with so many Democratic lawmakers, especially on the Assembly side? These days, they often seem strangely craven toward the business lobbies.

Both Perata and Bowen, Democrats, commented obliquely on that question when I talked to them.

Perata expressed disappointment in his fellow Democrats.

“I was just blown away,” he said. “In an era of term limits, lawmakers have very little sense of how they got here. They are very frightened of moneyed interests harming them in a campaign.

“Money in Sacramento can kill anything. . . . I believe these people are fearful these guys [in the payday industry] will dump a lot of money into their districts and prevent them from being reelected.”

So, of the nine Democrats on the committee, only one, John Dutra of Fremont, was willing last week to stand up for control of the payday lending industry and its annualized interest rates of as much as 911% in this state, although Perata thought he would have gotten several other votes if anyone had dared give Dutra’s motion to pass the bill a second.

Meanwhile, none of the five committee Republicans backed the bill.

Bowen lamented that so few on the committee even would vote.

“Years ago, an unwritten rule was that everyone voted,” she said. “These days, people just don’t vote. It takes a while to get comfortable to where you can push against industry opposition where consumer interests are at stake.”

If Perata and Bowen are right, there is something terribly wrong with the system, I thought.

The Banking and Finance Committee is headed by Lou Papan of Millbrae, who consumer advocate Harvey Rosenfield alleges is “the most consistently anti-consumer vote of any Democrat in the Legislature.”

Bowen put it more politely: “Not much consumer protection legislation comes out of that committee.”

Ed Randolph, a spokesman for Papan, called these assessments inaccurate. He mentioned that Papan is authoring medical privacy legislation this year for consumers.

Neither Assembly Speaker Bob Hertzberg (D-Sherman Oaks) nor Gov. Gray Davis, another Democrat, took any position on the Perata bill, a contrast with the situation in Florida, where GOP Gov. Jeb Bush has been a supporter of payday reforms. (Another reform backer nationally has been Sen. Joseph I. Lieberman, the Democratic vice presidential nominee.)

A Davis administration official made the point to me this week that Davis seldom takes a position on anything that is still pending in the Legislature. Experience, however, suggests governors sometimes need to be more proactive earlier in the process.

Paul Hefner, Hertzberg’s press secretary, said the speaker “unfortunately found out about the failure [in Papan’s committee] after the fact.”

But, he said, Hertzberg “intends to engage on this issue” before the legislative session is over.

Hefner mentioned that Hertzberg is sponsoring legislation this year that would require credit card companies to list on each monthly bill how long it would take to pay off the balance if one makes only the minimum payment. That’s pretty important, so maybe there is some hope that Hertzberg, in his speakership, will yet turn more broadly into a consumer champion.

Under payday lending, a borrower, to obtain $100, writes a check for $117.65, and it is supposedly held until his next payday and then cashed.

However, on many occasions, when the payday comes in a week or two, the borrower still has insufficient funds to pay all his bills, and he rolls over the check, paying a new $17.65 fee. After a few rollovers, the fees exceed the amount borrowed, and the hapless borrower may be going through the same sad process at several different payday lenders at once.

One provision of the Perata bill, suggested by Senate President Pro Tem John Burton (D-San Francisco), has been that the permitted fee be reduced from $17.65 per $100 to $12 per $100, leaving the annualized interest at a maximum of 625%.

But there are reports that as part of a compromise, Perata may back off to a fee of $15 per $100. This raises a bad aspect of many legislative compromises; often, by the end, a bill becomes so watered down as to be fairly inconsequential.

Payday lending was authorized in California only in 1997, but since then the number of outlets has grown to a whopping 2,000.

Seventeen states do not authorize payday lending, including New York and Pennsylvania.

But the lenders are increasingly using federal and state chartered banks and thrifts from other states to conduct payday-style transactions in states that bar the practice.

Rep. John LaFalce (D-New York) has a bill in Congress to ban many such exports.

There is, in short, as there should be, a national struggle going on against the payday business.

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Ken Reich can be contacted with your accounts of true consumer adventure at (213) 237-7060 or by e-mail at ken.reich@latimes.com.