Today, the Center for Responsible Lending (CRL) filed a public comment on urgently needed rules proposed by the California Department of Business Oversight (DBO) that would require payday lenders to follow California law by prohibiting the use of electronic transfers and debit cards in payday transactions. The rules would also create a new real-time electronic database to enforce existing law requirements that borrowers take out only one loan at a time.
"The DBO's proposals will limit payday lender practices only to those activities actually authorized under the law and give DBO a real-time database that it needs to enforce existing provisions of California law: the 'one-loan-at-a time' requirement. While this would be a positive step, taking out even one loan at a time creates perilous debt traps for borrowers," said CRL Senior Policy and Enforcement Strategy Counsel Caryn Becker.
Many payday lenders, particularly those offering loans via the internet, do not require borrowers to submit paper checks that are required in current law for each transaction. These lenders rely exclusively on electronic debits from a borrower's account, which are not authorized under current law. DBO's proposals, if implemented, will hold all licensed lenders to the specific requirements of the law.
The comment comes one week after DBO released updated data on the payday lending industry. The data shows the industry is still growing. Payday lending activity increased from 2013 to 2014. In 2014, the total dollar amount of payday loans increased 6.6% from 2013, to $3.38 billion. The number of payday loan transactions also rose 2% to 12,407,422.
"We are alarmed that the payday lending industry continues to grow in California," Becker said. "The toll payday lenders take on our state, particularly on low- to moderate-income communities, is high. Every dollar of the billions paid to payday lenders in 2014 is a dollar a Californian was not able to spend in their community, to put toward helping their family, or to invest in their future."
While the proposed DBO rules would be a step in the right direction of enforcing existing law, CRL continues to call on the California legislature to enact a 36% interest rate cap to end the debt trap. According to recent polling, there is strong, bipartisan support for reining in abusive payday lenders.
For more information, or to arrange an interview with a CRL spokesperson on this issue, please contact Andrew High at Andrew.High@responsiblelending.org or 919-313-8533.