Tag Archives for " California "
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.
While protests rage on and students plead with lawmakers to ease their student loan burdens, the last thing the younger generations want to hear is that college costs may again be on the rise.
The California State University Board of Trustees received horrible news regarding the impact that state funding cuts would have on their institutions. If a November ballot fails to be passed, the Cal State system could lose up $200 million in funding for the 2012-13 academic year, reported the LA Times.
If such a slash occurs, thousands of faculty and staff positions would be in jeopardy, some academic and athletic programs would have to be eliminated and student loans may rise.
F. King Alexander, the president of Cal State Long Beach (CSULB) believes his campus will lose $26 million if the November legislation falls through. Such an enormous funding slash would result in CSLB being forced to eliminate 400 jobs and 1,800 classes.
“We already are spending so little on our students,” explained Alexander. “We can no longer spend less on them and give them a quality education unless we reduce enrollment.”
The enrollment to CSULB is expected to impact 23,000 applicants that Alexander believes will be wait-listed in fall of 2013.
With such alarming numbers facing closed doors at colleges, high school counselors are having difficulty advising their students on what to do after graduation. Sylvia Womack, a college and career center supervisor for Polytechnic High School in Long Beach, told the LA Times that the enrollment uncertainty will drive students to private or out-of-state schools.
“This will them think, ‘Why should I wait for Cal State Long Beach when Whittier College will take me in right now?’ ” explained Womack.
In addition to those being turned away, the burden of such costs could fall on attending students as well. When the state cuts funding to its higher education institutions, the individual campuses will need to extract that money from other sources. One such possibility is raising prices for students. Raised fees would directly affect the cost of student loans.
Dan Nannini, the director of the transfer center at Santa Monica College, expressed his concerns of rising student loan costs. “The kid who is not of means or can’t enough to pay, they have to wait around until someone opens up their door.”
Many already feel higher education opportunities cater to the upper class, and place an unfair burden on those in the middle and lower brackets. Some believe the rising costs of student loans will expand that gap while others feel a price hike may deteriorate the California state university system to such a degree that future generations will simply avoid it.
21-year-old CSULB women’s studies major named Sara Castledine seems to be losing hope. “I graduate in May and if this is how it is now, how is it going to be in five years when my siblings and others are graduating and going to college? Is there going to be a school worth going to?”
Her questions raise a good point. Will there be high school graduates willing to borrow expensive student loans for what appears to be an inevitable subpar educational system, or will they simply leave California for other states’ institutions?
A 56-year-old Poway woman named Lirio Lee Ramos has been charged with 14 counts of loan sharking.
Ramos, 56, pleaded not guilty to the misdemeanor charges. The criminal complaint states that Ramos gave personal loans to 14 people between May 2009 and December 2010. Each of the loans had an interest rate that was in excess of 10 percent, which is the maximum allowed by California law.
Certain businesses are permitted to set their own interest rates above 10 percent, as credit card holders know all too well, but the practice of loan sharking occurs when an unlicensed individual lends money for personal, family or household purposes over an established legal rate.
“In these tough economic times, individuals may seek out friends or colleagues to extend loans to them,” said Jan Goldsmith, San Diego City Attorney, in a news release. “In some communities, people may be accustomed to paying high interest on personal loans. They may not be aware that it is illegal in California to charge these high rates of interest.”
Banks are typically the preferred source for personal loans, which are commonly used for debt consolidation and the purchase of expensive household items; however individuals are also allowed to lend to others with the stipulation of being limited to lending money at a maximum of 10 percent interest.
While a personal loan set at a usurious interest rate may be lucrative for the lender, it is in violation of California state law and carries a potential one-year jail sentence.
Each one of Ramos’ misdemeanor charges will be tried, and each carries that potential one-year jail sentence.
Reports have not mentioned Ramos being associated with any form of violence, but Goldsmith is still urging anybody who may have been a victim of Ramos’ high interest personal loans to contact the City Attorney’s Consumer Help Line at (619) 533-5600.
California financial regulators announced several warnings this week regarding the proliferation of illegal online payday loan lenders offering their services to state citizens.
The consumer alert, which appeared on the California Department of Corporations’ (CDC’s) website, said that many of these lenders who offer bad or no credit payday loans fail to include the annual percentage rate (APR) of the financing they offer. APR is used as a standard measure of a loan’s true cost, and an APR figure is required to be blatantly visible on all lending offers, payday loans included.
Additionally, it warned of an increase in harassing debt collection practices.
“Unlicensed payday lenders are becoming more aggressive in their collection techniques,” said Corporations Commissioner Jan Lynn Owen in the alert. “We’ve heard of payday lenders hiring collection agencies and contacting employers and threatening to report to credit agencies. The department is taking action to shut down illegal lenders and protect consumers whenever we discover the violations.”
So far, nine payday lending companies have been targeted by the CDC:
Payday loans, also called short-term loans, no credit loans or cash advances, are used by borrowers who need money quickly. These financing options have very relaxed requirements, as virtually anybody with a checking account and a steady income can qualify. It’s precisely due to this financial availability and ease of access that industry advocates claim these no credit payday loans need to exist. But industry opponents claim these products are predatory at best, financially lethal at worst.
California law currently limits a single cash advance’s interest rate to 15 percent. However, that’s only a 2-week interest rate. If stretched out and expressed on the same timeline as most other loans’ interest rates, that 2-week, 15 percent restriction permits payday loans to be offered at an APR of 390 percent.
Compare that to the average APR of 30-year fixed mortgages, which currently hovers around 3.5 percent.
Industry supporters, however, argue that APR shouldn’t be used to judge their products. Their claim rests on the fact that no credit payday loans are designed to be short-term and repaid quickly. Since they’re not meant to be stretched out for a full year, APR shouldn’t be the unit of measurement used for this type of borrowing.
For all of their downfalls though, most do agree that there is a place for bad credit financing in our society.
“We understand that there is demand for small-value loans from many consumers,” said the Consumer Financial Protection Bureau (CFPB) on their website. “But we want to make sure that consumers understand the consequences of their decisions and are protected from risks that may be inherent in these products.”
California lawmakers will meet this week to discuss legislation to restrict and further regulate payday lending practices.
Senate Bill 515 aims to limit the number of loans a borrower can take out to four per year and would give consumers 30 days to pay back their loans for every $100 borrowed. All payday would also be tracked in a state database. Payday lenders would also be required to standardize their lending criteria and more thoroughly investigate a borrower’s ability to pay.
The measure, introduced by Democratic state Senators Jim Beall and Hannah-Beth Jackson, will be discussed on Wednesday in front of the Senate Banking and Financial Institutions Committee. Given the reaction ahead of that meeting, the bill may be amended to be less strict. It is anticipated that borrowers may receive 30 days to pay back all loans, not 30 days per $100, and may be allowed to take out up to six loans a year.
Currently, the law limits the length of payday loans to a maximum term of 31 days, but sets no minimum. In California loan amounts cannot exceed $300 and fees are limited at 15% on cashed checks.
The bill was co-sponsored by the National Council of La Raza, the California Reinvestment Coalition, Public Interest Law Firm and the Center for Responsible Lending. In a letter to Senator Lou Correa, the chair of the Senate Banking and Finance Committee, the CRL argued that SB 515 would reduce borrower’s need for additional loans, limit payday loans to short term emergency use and ensure that families can afford to repay loans.
“Without some consistent standards, lenders who do not use underwriting will attract the most vulnerable borrowers with the least ability to pay to their products,” the letter reads.
The California payday lobby, meanwhile, has donated heavily to California politicians over the years. The Daily Democrats reports that four of the nine members on the committee set to meet tomorrow, including Senator Correa, are among the top 10 recipients of payday lobby funds.
In recent years, bills to limit payday lending have received limited support, while bills to increase the spending limit have had greater success.
AB 1158, discussed in June 2011, would have “increase[d] the maximum face value of a check used to obtain a payday loan from $300 to $500.” Assuming lenders charged the maximum fees, this would have raised the amount of money lent from a max of $255 to $425. The bill was passed by the state assembly but rejected by the Senate.
The Senate Banking and Financial Institutions committee will meet tomorrow at 1:30 PM.
California politicians voted down a bill that would have increased regulation on payday lending during a Wednesday meeting of the Senate’s banking committee.
The bill, SB 515, would have prevented borrowers from taking out more than four payday loans in one year. It also called for stronger vetting of payday loan borrowers’ ability to pay and would have extended borrowers’ repayment periods.
Five members of the California Senate Banking and Financial Institutions Committee voted against the bill, three voted for it and one member abstained.
Though the committee does not release how each member of the committee voted, representatives from the Center for Responsible Lending believe committee head Sen. Lou Correa voted against the bill. Correa is one of the top ten receivers of campaign funds from payday loan lobbyists in the state.
In a statement to loans.org, Sen. Hannah-Beth Jackson, who wrote the bill, expressed her disappointment with the vote.
“I’d hoped that more committee members would have been willing to stand up to the industry. I will continue to push the issue until we have reasonable controls over these predatory lending practices, which adversely impact the poorest among us.”
According to Jackson, the vote consisted of Correa, Roth, Calderon, Walters and Berryhill voting against moving the bill forward and Beall, Corbett and Hill voting in support of it. Hueso abstained.
Jackson, however, plans to continuing working towards payday loan reform in California.
“Even though the bill was not voted out of committee yesterday, it is not dead. It was granted ‘reconsideration,’ meaning it can be taken up again at a later date,” Jackson said.
As previously reported, the bill was not expected to move forward in the same form Jackson intended. Due to the strength of the payday lobby, and its financial support of several members of the banking committee, it was expected that the bill would be modified to allow borrowers six payday loans a year.
SB 515 also called for extending loan repayment terms to 30 days for every $100 borrowed, but it was believed that the 30-day term would have been applied to the entirety of the loan. Currently payday loan terms are no longer than 31 days, and the fees are capped at 15 percent on cashed checks.