Holding Lenders in Check

In recent months, national leaders as disparate as GOP Gov. Jeb Bush of Florida and Sen. Joseph Lieberman of Connecticut, the Democratic vice presidential candidate, have spoken out about the burgeoning payday loan industry, which keeps too many of the working poor perpetually in debt. Legislators can do little about the bad money management or personal emergencies that lead people to borrow at exorbitant interest rates against their next paycheck, but lawmakers can and should rein in the industry. The problem is especially acute in California, where more than 1,500 payday lenders have set up shop in the state since a 1997 law allowed them to charge annualized interest rates of up to 800%. The current average is just under 500%.

These rates allow lenders to trap poor people on treadmills of debt. Today, legislators will have a chance to correct the 1997 law. A bill by Sen. Don Perata (D-Alameda) would prohibit payday lenders from advancing more than a quarter of a client’s paycheck, require that payday lenders be licensed in the state and limit to $30 the fee that could be charged on a $100 loan over 10 weeks.

In May, the full Senate decisively passed an earlier version of the bill, Perata’s SB 1501, noting that it helps protect borrowers while still allowing payday lenders, who are admittedly a last resort, to charge far more than other nonbank lenders like Avco. A technical maneuver killed the bill in the Assembly, but Assemblywoman Sheila Kuehl (D-Santa Monica) plans to revive the dead bill today by folding its contents into an active bill, SB 1483, also by Perata.

The danger now is that Assembly leaders will prohibit members from voting on the new bill, or that they will kill the bill once again by referring it to a policy committee for “more study.”

Perata recently told the Times’ Kenneth Reich that his colleagues in the Assembly are “very frightened” that if they approve his bill “the payday industry will dump a lot of money into their districts [to aid opposing candidates] and prevent them from being reelected.” Assembly speaker Bob Hertzberg (D-Van Nuys) should not let the Legislature buckle to campaign-driven pressure. Poor working people with no other alternative deserve this small step toward fairness in lending.

To take action: Assembly Speaker Robert M. Hertzberg, (916) 319-2040, or district office 818 904-3840. E-mail: speaker@assembly.ca.gov.