California Considering an Increase In Payday Loan Limits

In California, a bill to increase payday lending limits in the state has been dormant since last summer when it was passed with support from both parties.  However, Assemblyman Charles Calderon, a democrat, is trying to revive the bill in the Senate.  Consumer advocates maintain that if this does happen, the bill must be amended to increase borrow protection.

This bill, known as Assembly Bill 1158, would increase the limit on payday lending to $500, up $200 from the previous limit of $300.  The problem is that even at $300 borrowers only actually receive $255 and many cannot pay that off in time.  This results in more and more loans, each one at the price of $45 and an interest rate equivalent to 460% per year. The debt cycle only continues until there really is no way out for many.

The damage is real, and it is recognized by congress.  In fact, due to fear that they could damage the readiness of troops to serve, they have now banned members of the military from taking out payday loans.  San Jose has also issued restrictions on new storefronts for payday lenders due to concerns over their effect on the low-income community.

Changes requested of Assemblyman Calderon include first and foremost a six-loan limit per household.  Another change intended to protect borrowers is an increase in the terms of these types of loans from 2 weeks to 31 days, allowing extra time to pay the loan off. It is also suggested that lenders be required to actually consider a potential borrower’s ability to pay, rather than offering funds to pretty much anyone who applies.

Other states have seen success in regulating the industry by instituting a rate cap, but in Sacramento payday lenders are so influential that consumer advocate groups have pretty much abandoned this path.  The consensus remains, however, that if state legislators allow the increase to $500, these amendments are necessary to decrease the potential damage these loans can cause.

Payday loans have been banned altogether in many states, but that is not even a consideration for the most part in California.  The only hope of mitigating the risk of damage to the borrower is for legislatures to increase borrower protection.  These amendments are a good start, and borrower education could further aid the cause.  One thing for certain is that to many consumer groups in California, it appears that those less fortunate cannot rely on their lawmakers to protect them from shady lenders.

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