BILL ANALYSIS �
AB 1158
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Date of Hearing: May 4, 2011
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 1158 (Calderon) - As Amended: April 13, 2011
Policy Committee: Banking and
Finance Vote: 7-1
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill changes the maximum for a Deferred Deposit
Transaction, also known as a payday loan, to allow a lender to
defer the deposit of a customer's check with a face amount of
$500, up from $300 in current law.
FISCAL EFFECT
The Department of Corporations, the agency that licenses payday
lenders, indicates that costs for enforcement are minor and
absorbable.
COMMENTS
1)Purpose. According to the author, California is currently
tied for the lowest maximum loan limit in the country even
with a higher cost of living than elsewhere. In 2007, the
Department of Corporations delivered a report titled "The
California Deferred Deposit Transactions Law' to the
Legislature. The author states that one of the key
recommendations of the report was to increase the maximum loan
amount to $500 or $750, based on the fact that California was
low compared to other states and that the maximum loan
appeared too low to meet the need for an emergency for
consumers. The author points out, taking inflation since 1995
into account, an inflation-adjusted maximum loan limit at the
end of 2010, comparable to $300 in 1995 would be $442.
2)Background. A payday loan, known more formally in California
as a Deferred Deposit Transaction, is a short-term loan in
which a borrower writes a post-dated, personal check to a
AB 1158
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lender for a specified amount, which is capped by law. The
date on the check is the date on which the parties agree that
the borrower will repay the loan. The lender advances the
borrower the amount on the check, less the fee, which is also
capped by law. The lender defers deposit of the check at the
time the loan is made.
The payday loan business has been the subject of significant
criticism for what some consider predatory lending practices
directed at lower income individuals. This has led to passage
of federal and state legislation restricting payday loans
marketed to military families, as well as numerous other
proposals aimed at regulating payday loan practices. On March
10, 2008, the Department of Corporations released two reports
containing numerous findings and recommendations relating to
the payday loan industry in California, which contained
numerous findings and recommended actions for regulating the
industry.
3)Opposition. A coalition of community and consumer
organizations is opposed because they state that usurious
interest rates are used. They point out that California law
allows a borrower to write a check for a maximum of $300 to
borrow $255. The high cost of payday loans (459% APR-they
estimate), together with the short two-week repayment term,
virtually ensures that cash-strapped borrowers will not be
able to meet their basic expenses and pay off their loan at
their next payday. It follows, then, that increasing the
amount of debt payday borrowers owe will only increase the
likelihood that payday borrowers will not be able to pay off
the loan at their next payday, and will be more likely to land
in the debt trap.
Analysis Prepared by : Roger Dunstan / APPR. / (916) 319-2081