Bill raises loan amount and maintains 459% APR
Assembly members approved AB 1158 by an 45-14 vote today, with 21 members not voting. The bill, authored by Asm. Charles Calderon (D-Montebello), would raise the payday loan amount limit from $300 to $500. Recent data from the Department of Corporations however, show that the average amount of a payday loan has actually dropped since 2009, indicating that the need for higher loans is simply not there.
"This is a dangerous bill for Californians already struggling to make ends meet," said Paul Leonard, director of the California office of the Center for Responsible Lending. "Raising the amount that can be borrowed simply means that more borrowers will be caught in a longer and deeper payday lending debt trap—and provides a windfall to payday lenders."
Payday loans are short-term loans made at 459% APR that are secured by a borrower's personal check, with the amount loaned plus fees (currently up to $300) due in two weeks.
The payday lending industry claims the product is for unexpected financial shortfalls or one-time emergency use. But for the overwhelming majority of California borrowers, the loan becomes a debt trap when they cannot afford to repay for their loan and cover basic living expenses. They then take out loan after loan, paying $45 in fees to re-borrow the same money every time—as often as 7 times before they are able to pay it off.
"It's a myth that these loans are meant for one-time use. They are a trap for—and the lenders' business models rely on—repeat borrowing," said Paul Leonard."With a string of 7 consecutive loans, a borrower pays more than $600 to borrow $250 today. With this bill, the same borrower would need nearly $1,000 to pay off a $425 loan."
The bill will next be heard by the Senate Banking Committee. The hearing date has not been set.
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