Consumer Advocates Urge California Lawmakers to Pass “Predatory Payday Lending Reform” (SB 515)


Center for Responsible Lending
April 12, 2013

What: The California State Senate Banking Committee will hear Senate Bill 515 on April 17th.  The bill takes a dramatically different approach from previous efforts to reform payday lending by targeting the highly toxic aspects of these loans that cause the most damage to consumers – the debt trap.  Borrowers take out consecutive 2-week loans—often multiple times—because they do not have enough money to repay their loan in full in so short a time.  This bill will allow borrowers to access short-term, high-cost emergency credit, but afford them a more realistic opportunity to repay the loan.  For more information visit http://rspnsb.li/CApayday

SB 515 will:

  • Prohibit lenders from making more than 4 loans to any consumer in a 12 month period, enforced by a new statewide real-time database.
  • Require lenders to assess a borrower’s ability to repay the loan.
  • Extend the standard loan terms.
  • Require lenders to offer an extended repayment plan if the borrower is unable to repay their loan on time.

When: SB 515 will be heard in the Senate Banking Committee on Wednesday, April 17, 2013 at 1:30 pm PT.

Where: Room 112, State Capitol

Who: Bill author: (D) Senator Hannah-Beth Jackson, district 19 – Santa Barbara.  Bill sponsors: California Reinvestment Coalition, Center for Responsible Lending, Law Foundation of Silicon Valley, and National Council of La Raza

Why: Payday loans are short term, high cost (459% APR) small-dollar loans that are marketed as “a quick and easy way to bridge an emergency financial gap” until a borrower’s next payday.  The maximum loan amount in California is $300, including the $45 fee.  For many California families living paycheck to paycheck, the high price of a payday loan and short repayment period of two weeks virtually ensures that cash-strapped borrowers will not be able to repay their loan and consequently fall into a cycle of repeated borrowing, creating a debt trap.  

"Many major California cities have done all they can to contain the payday loan industry, but we need the ethical leadership of our state legislature to truly protect consumers from the predatory practices of these lenders," said Liana Molina, Organizer, California Reinvestment Coalition.

“We are truly interested in trying to find some common ground that maintains access to short-term high-cost credit for financial emergencies, while providing protection for consumers from the payday debt trap,” said Paul Leonard, California Director of CRL.  “With this proposal, we are seeking a “third-way” between our past efforts to establish a 36% APR interest rate cap (which Congress provided for members of the Military in 2007, and many other states have adopted) and payday lenders’ desire to make larger payday loans.  To do that we are advocating reforms to prevent the payday debt trap and make these super high-cost loans safer for borrowers.” 

“It’s time that our state legislature hear and respond meaningfully to the voices of working-class families of our community, represented by dozens of agencies like ours that work to prevent poverty and its consequences, who want responsible and fair financial products and real help, not payday lending, said Kyra Kazantzis, Directing Attorney, Law Foundation of Silicon Valley.

“We are well aware of the need for access to credit in our community and are working with responsible lenders to develop viable alternatives,” said Delia de la Vara, Vice President of the California Region at National Council of La Raza  “Wealth-stripping products, such as payday loans with 460 percent interest rates that trap borrowers in long-term debt, are not the answer.  We urge lawmakers to support a strong payday reform bill with responsible loan terms, and that provides the community with a more realistic opportunity to pay back the amount borrowed.”

For more information: Graciela Aponte at (510) 379-5518 or graciela.aponte@responsiblelending.org; Kathleen Day at (202) 349-1871 or kathleen.day@responsiblelending.org; or Ginna Green at (510) 866-5989 or ginna.green@responsiblelending.org.

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About the Center for Responsible Lending

The Center for Responsible Lending is a nonprofit, nonpartisan research and policy organization dedicated to protecting homeownership and family wealth by working to eliminate abusive financial practices. CRL is affiliated with Self-Help, one of the nation's largest community development financial institutions.