Payday Loan Reform Stymied

The growth of payday loan outfits in California--more than 3,000 have set up shop since 1997--is no surprise to anyone who has seen the explosion of “Checks Cashed!” signs and billboards. What does shock is the average 485% annualized interest rate that payday lenders charge--a rate so high that, according to the industry’s own studies, it traps most borrowers on treadmills of debt.

Last month, the state Senate passed a bill by Sen. Don Perata (D-Alameda) that would prohibit payday lenders from advancing borrowers more than a quarter of their paychecks and that would limit to $12 the amount that could be charged on a $100 loan. Perata’s bill, SB 1501, would allow a reasonable profit but at the same time rein in loan sharks. Twelve dollars on a $100 loan, after all, is more than other nonbank lenders like Avco and Household Finance charge.

Perata’s worthy bill is now in the Assembly, but legislators there may never get a chance to consider it. In a time-honored tactic used against reform, leaders have “double-referred” the bill, ruling that unless two separate committees somehow manage to take up and pass Perata’s reforms by week’s end, the bill will die.

This requirement is both unreasonable and unfair, especially given that one of those committees has already held its last scheduled hearing of the session. Assembly Speaker Bob Hertzberg (D-Sherman Oaks) can and should waive the requirement and give Perata’s bill its rightful chance to be heard.