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September 8, 2011 – Payday loans can offer short-term financial relief for borrowers strapped for cash, but as debate on a new California bill has pointed out, they can also put borrowers deeper in debt while stacking on high interest rates and fees.
California lawmakers are discussing a bill (AB 1158) written by Assembly Majority Leader Charles Calderon (D-Whittier) that would amend the current state laws to increase the maximum amount borrowers can receive.
Current law sets the maximum payday loan at $300, with a cap for lender fees at 15 percent of the loan. For a two-week loan, this fee amounts to a 460 percent APR. According to the bill, California is tied with one other state for the lowest cap among the states that allow payday financing.
“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,” bill advocates said.
Among the bill’s supporters are members of the payday lending industry, the California financial Service Providers’ Association and the Community Financial Services Association. Opposition includes Center for Responsible Lending, California Reinvestment Coalition and the city of San Diego, among a variety of others.
One concern the opposition has voiced is that borrowers can take out more than one payday loan at a time. Existing state legislation, enforced by the Department of Corporations, limits a payday lender from granting a borrower more than one at a time; however, it does not prohibit a borrower from taking out a loan from a different company to pay off another.
Lawmakers on both sides are advocating changes to the bill to make it more effective, such as considering income-based limits and repayment plan options. Also up for debate, according to an article in the Los Angeles Times, is requiring lenders to assess a borrower’s financial situation before giving them a loan, and also limiting the number of loans a borrower can take out each year.
Many are also concerned with the borrowers’ ability to pay back these larger sums in a short period of time. In the Assembly’s third reading of the bill, opposition said, “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.”
AB 1158 is currently in a Senate Judiciary Committee and debate is ongoing.
Daimler, the third-largest luxury automobile manufacturer in the world, intends to increase auto loans in Asia and Africa by 50 percent over the next two years. This comes with the expectation that increasing wealth in China also increases demand for their most well-known line of vehicles: Mercedes-Benz.
Daimler’s financing arm, Daimler Financial Services AG, is targeting an auto loan portfolio valued at 18 billion euros—roughly $23 billion—for the two massive continents by 2014, according to Richard A. Howard, the division’s head in Asia and Africa.
Adding credence to Howard’s expectations is the rising number of Asia-Pacific millionaires, which increased by nearly 2 percent in 2011. For the first time, the number of millionaires in Asia-Pacific outnumbered those in North America, according to the World Wealth Report published by Royal Bank of Canada and Capgemini SA.
“The center of the automotive universe is now in Asia. There’s a huge potential to grow and get the numbers here at least to the global average,” Howard told Businessweek. He also added that China and India will lead Daimler Financial Service’s growth in the countries he oversees.
Daimler Financial is tasked with financing 50 percent of all vehicles sold globally by Daimler, which is based in Stuttgart, Germany. Howard expects Asia to boost his auto loan portfolio from 85 percent to 90 percent by 2014.
In 2011, auto loan financing companies provided roughly 200 billion yuan ($31 million) worth of loans last year in China, according to automobile manufacturer Guangzhou Automobile Group (GAG). Concurring with GAG, the China Association of Automobile Manufacturers expects the market will more than double to 525 billion yuan ($83 billion) by 2025.
Daimler isn’t narrowing its options to China. The company plans to begin auto loan services in Malaysia and Indonesia this year as well.
Howard explained that Japan, Australia, South Africa, Korea, and Thailand—despite being mostly “mature markets”—would also contribute to Daimler’s expected auto loan growth in 2014.