BILL ANALYSIS �
SENATE JUDICIARY COMMITTEE
Senator Noreen Evans, Chair
2011-2012 Regular Session
AB 1158 (Calderon)
As Amended April 13, 2011
Hearing Date: July 5, 2011
Fiscal: Yes
Urgency: No
SK:rm
SUBJECT
California Deferred Deposit Transaction Law (Payday Lending)
DESCRIPTION
Existing law permits payday lenders to defer the deposit of a
customer's personal check for up to 31 days. The maximum value
of a check for a payday loan is limited to $300, and the maximum
fee cannot be more than 15% of the face amount of the check.
This bill would increase the maximum value of a check for a
payday loan from $300 to $500.
BACKGROUND
Current law, the California Deferred Deposit Transaction Law
(CDDTL), regulates payday loan lenders, and places a number of
restrictions on payday loans. For example, the CDDTL requires
that payday lenders be licensed by Department of Corporations
(DOC) and permits lenders to charge a fee of 15 percent of the
face amount of the check which cannot have a face value of more
than $300. The Act also specifies disclosure and notice
requirements, including that the annual percentage rate (APR)
and any charges and fees be disclosed to the consumer.
Recent figures from DOC indicate that, as of December 31, 2010,
there were 2,144 licensed payday loan locations in California.
In 2010, 1.65 million Californians took out 12 million payday
loans worth approximately $3.13 billion.
(more)
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The following information was obtained from DOC's "2010 Annual
Report: Operation of Deferred Deposit Originators under the
California Deferred Deposit Transaction Law" (2010 Annual
Report):
----------------------------------------------------------
| |2006 |2007 |2008 |2009 |2010 |
|------------------+-------+-------+-------+-------+-------|
|Total dollar |$2.55 |$2.97 |$3.1 |$3.19 |$3.13 |
|amount of payday |billion|billion|billion|billion|billion|
|loans made | | | | | |
| | | | | | |
|------------------+-------+-------+-------+-------+-------|
|Total number of |10.05 |11.15 |11.8 |11.88 |12.1 |
|payday loans made |million|million|million|million|million|
| | | | | | |
|------------------+-------+-------+-------+-------+-------|
|Total number of |1.43 |1.61 |1.67 |1.57 |1.65 |
|individual |million|million|million|million|million|
|customers who | | | | | |
|obtained payday | | | | | |
|loans (repeat | | | | | |
|customers counted | | | | | |
|once) | | | | | |
----------------------------------------------------------
In addition, the 2010 Annual Report provides the following
information with respect to individual payday loans made:
----------------------------------------------------------
| |2006 |2007 |2008 |2009 |2010 |
|------------------+-------+-------+-------+-------+-------|
|Average dollar |$254 |$266 |$262 |$262 |$258 |
|amount of payday | | | | | |
|loans made | | | | | |
|------------------+-------+-------+-------+-------+-------|
|Minimum dollar |$10 |$10 |$6 |$8 |$4 |
|amount of payday | | | | | |
|loans made | | | | | |
|------------------+-------+-------+-------+-------+-------|
|Maximum dollar |$300 |$300 |$300 |$300 |$300 |
|amount of payday | | | | | |
|loans made | | | | | |
|------------------+-------+-------+-------+-------+-------|
|Average annual |429% |424% |416% |414% |414% |
|percentage rate | | | | | |
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|(APR) | | | | | |
|------------------+-------+-------+-------+-------+-------|
|Average number of |16 |16 |17 |17 |17 |
|days of payday | | | | | |
|loan transactions | | | | | |
----------------------------------------------------------
In 2008, DOC released two reports, "California Deferred Deposit
Transaction Law, California Department of Corporations, December
2007" (DOC Report) and "2007 Department of Corporations Payday
Loan Study" (AMPG study).
The DOC report was based upon a survey of payday lenders and
DOC's annual report for 2005-06. The AMPG study was based on an
online survey of payday lenders, a telephone survey of
borrowers, and five customer focus groups. AMPG's study was
conducted between August and December 2007, for the 18-month
period between April 15, 2006 through September 11, 2007. Both
reports highlighted that, while a payday loan is intended to be
a short-term, one-time loan to meet emergency financial needs, a
large number of Californians use payday loans on a regular,
on-going basis and find that establishing a payday loan account
"opens the door to a repetitive cycle of borrowing that is
difficult if not impossible to end" (AMPG study). The DOC
report also found that 2.4 percent of payday loan borrowers took
out more than one loan at the same time from multiple lenders.
In 2009, AB 377 (Mendoza), among other things, proposed to
increase the amount of a payday loan check from $300 to $500.
That increase was added to the bill after it passed the
Assembly. This Committee held the bill after hearing testimony.
Like AB 377, this bill would increase the maximum value of a
check for a payday loan from $300 to $500.
CHANGES TO EXISTING LAW
Existing federal law imposes a 36% APR on consumer credit,
including payday loans, extended to members of the military and
their dependents. (10 USC Sec. 987.) Existing state law gives
DOC the authority to enforce these protections under the CDDTL.
(Fin. Code Sec. 23038.)
Existing law regulates, under the CDDTL, deferred deposit
transactions, defined as a transaction in which a person defers
depositing a customer's personal check until a specific date,
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pursuant to a written agreement for a fee. (Fin. Code Sec.
23000 et seq.)
Existing law places the following restrictions on payday
lenders:
limits the maximum value of the check to $300;
permits payday lenders to defer the deposit of a customer's
personal check for up to 31 days; and
limits the maximum fee to 15% of the face amount of the check.
(Fin. Code Secs. 23035(a), 23036(a).)
Existing law prohibits payday lenders from entering into a
payday loan with a customer who already has a payday loan
outstanding. (Fin. Code Sec. 23036(c).)
This bill would increase the maximum value of a check for a
payday loan from $300 to $500.
COMMENT
1. Stated need for the bill
The author writes that "California currently allows the lowest
maximum limit for deferred deposit transaction in the country.
This bill aims to correct this discrepancy and allow California
customers the ability to address real needs in a difficult
economic time."
Representatives of the payday lending industry, the California
Financial Service Providers' Association and the Community
Financial Services Association support the bill, writing:
Quite simply, the current payday advance limit is outdated; it
was put into effect nearly 16 years ago when short-term loans
were established in California. As you know, California is
one of the most costly states in which to live, and yet the
state has one of the lowest advance limits in the nation. The
$300 limit does not always meet the needs of families who have
run out of financial resources, especially in these tough
economic times.
Supporter California Hispanic Chambers of Commerce writes that a
payday loan is a "convenient, short-term financial option �that]
provides a fix for families faced with the prospect of bouncing
checks, shutting off utilities or worse, skimping on basic needs
such as medical emergencies."
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2. Increasing the maximum value of a payday loan check from $300
to $500
Existing law provides that a payday loan check cannot have a
face value of more than $300. This bill would increase that
amount to $500. These amounts include the fee that payday
lenders may impose. In the case of a payday loan check for
$300, that fee is $45. In the case of a $500 payday loan check,
that fee is $75. This increase was included in the DOC report
as a policy option (not recommendation), and was based on the
premise that payday loans will continue to be available to help
Californians meet short-term emergency cash needs, but that
longer-term installment products will be available for those
consumers unable to pay back the full amount of their payday
loans on their due dates.
The author and industry supporters argue that California's loan
limit of $300 should be increased to $500 because the current
limit is insufficient to meet the emergency cash needs of payday
loan customers, has not been adjusted since it was implemented
15 years ago, and is out of line with the limits in other
states. Despite those contentions, any increase in the loan
limit must be evaluated not in terms of years since the last
increase, but, instead, on the collateral effects of that
increase on struggling consumers and whether any increase makes
it even harder for them to pay off their debt. Previous
concerns about the risks posed by payday loans are reflected in
the Legislature's decision to place a cap on loan amounts.
a.Whether current limit is sufficient to meet borrower's needs
With respect to whether or not the current limit is sufficient
to meet borrower's needs, DOC attempted to evaluate unmet
demand due to loan limits by focusing on the number of
customers who obtained more than one loan at the same time
from different licensees. The sample survey, which analyzed
transactions of 72.2% of California's payday loan customers,
found that just 2.4% of the total customers in the sample
obtained more than one loan at the same time from different
licensees. DOC concluded that for this 2.4% of borrowers,
"the loan amount was not sufficient to meet �their] emergency
credit needs. This may be due to the loan limit being too low
or the licensees not willing to lend the amount needed by the
borrower."
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When the AMPG survey asked borrowers whether the amount they had
borrowed was the amount needed, over 60% of respondents
indicated that the amount they borrowed was what they needed
when reporting the minimum amount borrowed (79%) and the
maximum amount borrowed (63%). Opponent Center for
Responsible Lending (CRL) argues these findings demonstrate
that most payday loan borrowers are satisfied with the amount
they received and that borrowers do not need more than the law
currently allows.
Interestingly, as noted in the Background, the average dollar
amount of payday loans has actually decreased over the last
several years, also suggesting that payday loan customers
actually do not need additional funds.
From a policy standpoint, the cap on payday loans represents a
decision by the Legislature that the product should only be
used for a short term loan of no more than $300 (arguably due
to the risks involved in higher loan amounts). If, in fact,
the intent in enacting the CDDTL was to provide consumers with
sufficient funds to meet all emergency credit needs, there
would be no cap on the amount of the loan. Accordingly, the
policy choice represented by this bill is not whether the
current payday loan amount is sufficient to satisfy all
short-term credit needs, but whether the increase would
exacerbate the recognized risks associated with payday loans.
Opponent consumer groups, labor, and community organizations
argue that this bill would in fact aggravate the risk to
struggling consumers. (See Comment 2(b).)
b. Effect of increasing loan limit to $500
As noted above, the AMPG study indicated that "�a]lthough most
borrowers report turning to payday lenders as a one-time
solution to an immediate financial need, most report that the
establishment of a payday loan account opens the door to a
repetitive cycle of borrowing that is difficult if not
impossible to end."
Payday lending has even been called a "business model that
encourages chronic borrowing." (Michael Stegman, "Payday
Lending: A Business Model that Encourages Chronic Borrowing,"
Economic Development Quarterly, Vol. 17 No. 1, February 2003.)
Because borrowers often cannot repay a loan and meet other
expenses, they must pay off their current loan with their
paycheck and then very soon afterwards, sometimes immediately,
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take out another loan. The California Budget Project notes,
"�l]ess than 4 percent of payday loans went to Californians
who took out just a single loan during the entire year. More
than 170,000 Californians took out 13 or more payday loans.
Nearly half (48 percent) of payday loan borrowers in
California take out payday loans at least once per month. . .
"
As a result, the public policy question raised by this bill is
whether increasing the loan limit to $500 will harm payday
loan consumers by ensuring that they are caught in a
repetitive cycle and by making it even more difficult for them
to pay off their debt. A borrower who has a hard time paying
off a $300 loan within two weeks is very likely to be unable
to repay a $500 loan within that timeframe.
In a joint opposition letter, 35 consumer, labor, and community
organizations write that "the high cost of payday loans,
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. . . . Borrowers get caught in a cycle of debt,
leaving them worse off. It costs a typical borrower $570 to
pay back a single $255 loan; with a larger loan, the same
borrower would typically pay at least $950 for a $425 loan."
The California Budget Project argues that the bill would have a
disproportionate impact on low-income women of color, writing:
A 2007 survey of payday loan borrowers conducted for the
DOC revealed that well over half (59.8 percent) of
borrowers in California are women and three-quarters of
borrowers (74.1 percent) have annual household incomes
under $50,000. The survey also showed that
disproportionate shares of payday loan borrowers are black
or Latino.
According to CRL, a study recently released by the group found
that 76% of borrowers, after repaying one payday loan, must
take out another loan before their next paycheck. The study,
entitled "Phantom Demand: Short-term Due Date Generates Need
for Repeat Payday Loans, Accounting for 76% of Total Volume,"
found that half of all new loans are opened at the borrower's
first opportunity (immediately or after a 24-hour or more
waiting period where required). The study, which was largely
based on data from Florida and Oklahoma-both states with a
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$500 loan limit-also found that 87% of new loans are opened
within two weeks, or generally before the next payday, and
only six percent of subsequent payday loans are taken out
longer than a month after the previous loan was paid off. CRL
notes:
This rapid, widespread re-borrowing indicates that most
payday borrowers are not able to both repay one of these
loans and clear a monthly billing cycle before having to
borrow again. In essence, the bulk of payday loan demand
comes from borrowers who are taking out a payday loan to
repay a payday loan.
The City and County of San Francisco opposes the measure,
writing that "�i]n response to the proliferation of payday
lenders in San Francisco . . . San Francisco acknowledged the
need for short-term loans without predatory lending rates. It
established Payday Plus SF, a micro-lending program with six
local credits. San Francisco has demonstrated that better
alternatives to usurious payday lending rats are available and
therefore AB 1158 is unnecessary."
Increasing the payday loan limit from $300 to $500 also has
the effect of significantly increasing the fee imposed on
borrowers. Current law limits the face amount of a payday
loan check to $300 and the maximum fee to 15% of the face
amount. As a result, under existing law, the maximum fee
imposed is $45. Under this bill, increasing the payday loan
limit to $500 would result in a maximum fee of $75. Assuming
a lender would charge, and a borrower would take, the maximum
amount, that fee is 67% higher than allowable under current
law. With respect to the fee, Community Housing Works writes:
Last November, after a landslide vote, Montana joined 15
other states and the District of Columbia in placing
double-digit limits on the annual interest that payday
lenders can charge. With shrinking profits in other
states, payday lenders are trying to preserve their profit
margins on the backs of struggling Californians, by seeking
to increase the allowable loan amount from $300 to $500.
Opponents also note that while California has one of the lower
limits on the amount of a payday loan, other states that have
higher loan limits also have restrictions on the number of
loans that may be taken out.
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Given the concerns expressed above, DOES this bill's increase
of the loan limit to $500 ensure that payday loan consumers
are caught in a repetitive cycle of re-borrowing which may be
difficult if not impossible to end?
c. Amendments to address above concerns
The opposition suggests amendments to address its concerns,
writing:
The fact that families are struggling to make ends meet does
not justify gouging these families with 459% interest on
two-week loans that leave families trapped in a cycle of
repeat borrowing. AB 1158 is not about whether to preserve
or eliminate payday lending; it is about whether we are
going to expand an already risky and dangerous product, or
whether we are going to do something to better protect
California families in need. The current version of AB 1158
would expand payday lending and exacerbate the dangers.
Instead, we recommend that AB 1158 be amended in ways that
would truly help struggling families.
Those suggested amendments do the following:
adopt the FDIC's six-loans per household annual loan
limit in an effort to "�m]ake sure that extremely high cost
payday loans are addressing short-term emergencies, rather
than longer term debt;"
extend the minimum loan term to 31 days. This amendment
is based on a DOC policy option that would "�g]ive families
more time to repay a payday loan without the need to borrow
again;" and
adopt a requirement that lenders evaluate each
borrower's ability to repay, modeled on underwriting
provisions contained in the Pilot Program for Affordable
Credit-Building described in Comment 2. This amendment is
intended to ensure that borrowers can repay the loan.
Should the Committee desire to pass this measure, the
Committee should consider the above amendments, or similar
alternatives, in order to better regulate and control
high-cost payday loans so that working families are protected.
GIVEN THE CONCERNS RAISED ABOVE REGARDING THE IMPACT OF
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INCREASING THE PAYDAY LOAN LIMIT FROM $300 TO $500, SHOULD THE
BILL BE AMENDED TO PROVIDE BETTER CONSUMER PROTECTIONS TO HELP
STRUGGLING FAMILIES?
3. Is there an alternative? Recent legislative and
private-sector efforts aim to help provide a market for
reasonably priced small dollar loans
Proponents of payday lending argue that many borrowers have no
alternative but to take out a payday loan. According to the
Community Financial Services Association of America (CFSA), an
association of payday lending companies, other options are too
costly when compared with the fee for one payday loan. For
example, borrowers may be charged late fees on credit cards or a
non-sufficient funds fee if they bounce a check. Late payments
on utility bills also may be costly to the consumer,
particularly if they involve a reconnection fee.
As described below, however, new and emerging credit solutions
are entering the marketplace both through legislative and
private sector efforts. Many of these are directly focused on
creating an alternative to high-cost payday loans.
SB 1146 (Pilot Program for Affordable Credit-Building) As
noted in the DOC report, small, unsecured installment loans
may be made by entities licensed under the California Finance
Lenders Law (CFLL). DOC notes that the rates and fees on
these loans are limited, however, to an APR of about 30%,
compared to the average APR of 429% for a payday loan.
According to DOC, "�t]his by itself is a strong inducement to
make small, unsecured loans under the �payday loan law] as
opposed to the CFLL."
In an effort to address this lack of incentive to make small
dollar loans under the CFLL, last year, the Legislature passed
and the Governor signed SB 1146 (Florez, Ch. 640, Stats. 2010)
which created the Pilot Program for Affordable
Credit-Building. That program is an effort to "increase the
availability of affordable credit-building opportunities to
underbanked individuals seeking low-dollar-value loans and to
help those individuals move into the financial mainstream."
(Fin. Code Sec. 22348.)
The pilot program, which sunsets January 1, 2015, is intended
to provide a less costly alternative to payday loans by
creating a market for reasonably priced small loans and, at
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the same time, help loan recipients build credit. Under the
program, participating lenders may charge a higher interest
rate and fees than under the current CFLL. In March 2011, DOC
issued regulations implementing the program which contains the
following components:
the loan has a minimum principal amount upon origination
of $250 and is not more than $2,500, as specified;
the interest rate of each loan is capped at 30% for the
unpaid balance of the loan up to and including $1,000 and
26% for the unpaid balance of the loan in excess of $1,000;
origination fees are capped at 5% of the principal
amount of the loan or $65, whichever is less. Licensees
are prohibited from charging the same borrower more than
one origination fee in any six-month period;
the term of the loan is: (1) 90 days for loans whose
principal balance upon origination is less than $500, (2)
120 days for loans whose principal balance upon
origination is at least $500, but is less than $1,500; and,
(3) 180 days for loans whose principal balance upon
origination is at least $1,500;
licensees must report each borrower's payment
performance to at least one of the three major credit
bureaus; and,
a licensee must underwrite each loan and may not make a
loan if it determines that the borrower's total monthly
debt service payments exceed 50% of the borrower's gross
monthly income. In underwriting the loan, the licensee
must assess the borrower's willingness and ability to repay
and must validate a borrower's outstanding debt
obligations, as specified.
The pilot program created by SB 1146 contains two critical
elements that are not a part of the payday loan product.
First, the program requires licensees to report borrowers to
at least one of the three major credit bureaus, unlike payday
loans which are not reported. The intent of this requirement
is to help those borrowers who do not have a credit history to
establish one, and to help those borrowers who do have a
credit history to improve their credit scores. Second, unlike
payday loans, the program requires licensees to underwrite the
loan and ensure that the loan is affordable to the borrower.
In order to avoid the possibility of lax underwriting, this
provision was intended to ensure that the loans offered under
the Pilot Program are both affordable and responsible.
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While the Pilot Program for Affordable Credit-Building is just
getting underway, it represents an attractive affordable
alternative to costly payday loans for many Californians. In
fact, for some people, it could arguably reduce some of the
need for a short-term high-cost payday loan. Those same
individuals could instead apply for a more responsible
longer-term loan for $250 (or any amount up to $2,500) under
the program.
DOES THE RECENT PASSAGE OF THE PILOT PROGRAM FOR AFFORDABLE
CREDIT BUILDING REDUCE THE NEED FOR SHORT-TERM COSTLY PAYDAY
LOANS?
SHOULD THE LEGISLATURE WAIT TO EVALUATE THE PILOT PROGRAM AND
GIVE IT TIME TO WORK BEFORE INCREASING THE PAYDAY LOAN LIMIT,
ESPECIALLY GIVEN THE SIGNIFICANT CONCERNS ASSOCIATED WITH THAT
INCREASE, AS DESCRIBED ABOVE?
Bank and credit union alternatives With respect to other
alternatives to payday loans, the DOC report also states that
consumers "who do not have access to traditional sources of
credit (credit cards, home equity lines of credit, etc.) do
have alternatives to payday loans," noting that many banks and
credit unions have cash advance programs that provide
borrowers with cash that must be repaid generally within 35
days. For example, the Center for Responsible Lending writes
about "SF Payday Plus, a collection of San Francisco credit
unions offering loans with interest rates of no more than 18%
APR. Many other California credit unions also offer
small-dollar loans and accounts that include savings
components. Because all payday borrowers must have a bank
account, and the vast majority of credit unions have eased
membership restrictions that were once the norm, many
Californians could become credit union members and take
advantage of their responsible lending products."
Employer-based services In 2010, Emerge Workplace Solutions
began offering loans to employees using a workplace-based
approach. The company, whose goal "is to provide better
borrowing choices for working people and end predatory lending
practices," describes its loans (which require underwriting
and are usually approved within one to two business days) as
follows:
Emerge loans are offered by FDIC community banks and federally
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regulated credit unions that offer fair interest rates (from
9.9 percent to a high of 19.9 percent APR) with 4-8 months to
pay them back, and can build your credit if you repay on time.
Also, it's easier to pay Emerge loans back because payments
are automatically transferred to the financial institution via
direct deposit.
Lending circles; peer-to-peer lending Also gaining popularity
are "lending circles" in which participants pool their
resources by making monthly contributions which are disbursed
among the group at agreed-upon intervals. For example,
Mission Asset Fund (MAF) in San Francisco has partnered with a
local community development bank which holds the groups funds,
tracks payments and reports the results to credit bureaus. As
a result, unlike payday loans, participants are able to build
credit. The program, which is just over a year old, is
showing early signs of success:
An examination of the participants in the first two cestas
over a period of six months shows, according to MAF, that
credit scores rose on average by 47 points. More
significantly, in Mr. Qui�onez's view, is that the same group
showed an increase of 9 percent in the average number of
"satisfactory" credit accounts held by members of the group.
"Satisfactory" accounts are those where payments are being
made on time. That nine-point gain demonstrates that
participants are not only making their contributions on time,
they are also improving their payment performance on other
credit accounts. Qui�onez believes that MAF's approach to
helping individuals join cestas, which includes a measure of
financial education, is improving how they handle all their
financial affairs. ("My lender, my friend: Lending circles
with a Latino twist," Christian Science Monitor, January 30,
2010.)
Other alternatives Others argue that payday loan consumers
also have other options ranging from borrowing money from
friends or family, working out a payment plan with the
creditor (e.g., credit card or utility company), getting an
advance from an employer, obtaining emergency assistance from
faith-based or community organizations, delaying purchases or
obtaining a small consumer loan, or using a bill payment
service such as BillFloat to pay a bill. According to the
company, BillFloat "extend�s] your bill by up to 30 days,
helping protect your credit while avoiding late fees,
overdraft charges and expensive loans."
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FDIC Small-Dollar Loan Pilot Program - a model for affordable
small loans In addition, in February 2008 the Federal Deposit
Insurance Corporation (FDIC) began a two-year nationwide
"Small-Dollar Loan Pilot Program" under which participating
banks offered loans of up to $1,000; payment periods beyond a
single paycheck cycle; APRs below 36%; low or no origination
fees; streamlined underwriting criteria; and access to
financial education. In many instances, the banks indicated
that loans could be processed in less than an hour. The FDIC
indicated that the pilot, which ended at the end of 2009, was
a success and noted that "most pilot bankers indicated that
small dollar loans were a useful business strategy for
developing or retaining long-term relationships with
consumers. . . . The most prominent product elements bankers
linked to the success of their program were longer loan terms,
followed by streamlined but solid underwriting." The
participating banks-with total assets ranging from $28 million
to nearly $10 billion-demonstrated that it can be profitable
to offer affordable small-dollar loans as an alternative to
costly products such as payday loans.
Given the above arguably less expensive alternatives to a payday
loan, the Committee should consider whether this bill's
provision increasing the maximum value of a payday loan check
from $300 to $500 as discussed above would, in fact, aid
consumers struggling in the present economy or instead
contribute to a cycle of debt.
GIVEN THE ARGUABLY LESS COSTLY ALTERNATIVES TO A PAYDAY LOAN,
WOULD THIS BILL'S INCREASE OF THE LOAN LIMIT TO $500 IN FACT AID
CONSUMERS OR WOULD IT FURTHER EXACERBATE A CYCLE OF DEBT, AS
DISCUSSED ABOVE?
4. DOC report: policy options
As noted in the Background, the December 2007 DOC report was
based upon a survey of payday lenders and DOC's annual report
for 2005-06. That report included 22 recommendations, divided
into those intended to improve DOC's oversight of the industry
and those intended to strengthen its enforcement of the CDDTL.
In addition, DOC included a number of policy options for
consideration. DOC noted that its policy options were "based on
the premise that the payday loan will be available to meet the
short-term emergency case needs of the consumers, while allowing
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for a longer-term installment product for those consumers that
are not able to pay back the full amount of the payday loan on
the due date and have sufficient funds remaining to pay their
normal living expenses." The author notes that one of the
policy options suggested by DOC for further consideration was an
increase in the amount of the payday loan limit from $300 "to
another amount such as $500 or $750."
In addition to this policy option, DOC also suggested the
following for further consideration:
extend the term of a payday loan to 31 days (staff notes that
opponents to this bill suggest an amendment to the bill that
would implement this policy option);
prohibit a licensee from entering into a payday loan with a
borrower while that borrower had another payday loan
outstanding from any other licensee;
make the payday loan origination fee a flat fee rather than a
percentage;
base the fees for payday loans on the loan amount on a sliding
scale;
restrict a borrower from having a payday loan outstanding for
more than three months in the previous 12 months;
require a payment plan with a minimum of six equal monthly
installments; and
implement a database to track transactions
Support : California Financial Service Providers' Association;
California Hispanic Chambers of Commerce; Community Financial
Services Association
Opposition : AARP California; African American Network of Kern
County; Alliance of Californians for Community Empowerment;
Black Economic Council; California Association for Micro
Enterprise Opportunity; California Budget Project; California
Labor Federation - AFL/CIO; California Reinvestment Coalition;
California Rural Legal Assistance Foundation; California
Teamsters Public Affairs Council; Catholic Charities of
California United; Center for Responsible Lending; City of San
Diego; City and County of San Francisco; Coalition for Quality
Credit Counseling; Community HousingWorks; Community Legal
Services, East Palo Alto; Consumers Union; Council of Mexican
Federations; Dolores Huerta Foundation; East Los Angeles
Community Corporation; Greenlining Institute; Insight Center;
JERICHO; Honorable Jose Cisneros, Treasurer, City and County of
San Francisco; Korean Churches for Community Development; Latino
AB 1158 (Calderon)
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Congreso; Los Angeles Metropolitan Churches; LULAC - CA Council
3120; National American Indian Veterans Inc.; National Asian
American Coalition; National Council of La Raza - CA; New
America Foundation; Opportunity Fund Northern California; Public
Interest Law Firm; Santa Clara County Board of Supervisors;
Silicon Valley Community Foundation; The Americas Group; Ubuntu
Green; United Way of California; Western Center on Law and
Poverty
HISTORY
Source : Author
Related Pending Legislation : SB 365 (Lowenthal) would clarify
that a payday lender may not issue a payday loan to a customer
if the customer already has a loan outstanding with any other
licensee. The bill would also provide Legislative intent to
enact legislation that would authorize the Commissioner of
Corporations to contract with a third-party provider for the
implementation of a common database to aid in the enforcement of
the CDDTL. This bill is in the Senate Banking and Financial
Institutions Committee.
Prior Legislation :
SB 1146 (Florez, Ch. 640, Stats. 2010). See Comment 2.
AB 377 (Mendoza, 2009). See Background.
AB 7 (Lieu, Ch. 358, Stats. 2007) authorized DOC to enforce,
under the CDDTL, federal protections related to payday loans for
members of the military and their dependents.
SB 898 (Perata, Ch. 777, Stats. 2002) enacted the Deferred
Deposit Transaction Law and shifted authority for its
administration to the Department of Corporations.
SB 1959 (Calderon, Ch. 682, Stats. 1996) expressly authorized
payday lending in California and gave regulatory authority to
the Department of Justice.
Prior Vote :
Senate Banking and Financial Institutions Committee (Ayes 5,
Noes 0)
Assembly Floor (Ayes 49, Noes 16)
AB 1158 (Calderon)
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Assembly Appropriations Committee (Ayes 11, Noes 1)
Assembly Banking and Finance Committee (Ayes 7, Noes 1)
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