Payday lenders have dodged a bullet in California. But consumer advocates vow to renew their efforts next year in the Golden State, after failing to convince lawmakers this time around to crack down on an industry that has grown to roughly 2,000 facilities statewide since a state law legalized the loans three years ago.
This year’s legislative session ended Aug. 31 with no action on two payday loan bills – one restrictive measure backed by consumer groups and another, watered-down version that drew tepid support from payday lenders.
“We were more supportive of one than the other,” says Sam Choate, executive vice president and general counsel for Cleveland, Tenn.-based Check Into Cash Inc., which, eight years after opening its first store, now runs 521 locations in 15 states.
Choate argues the more objectionable bill “would have made it economically impossible to continue” to do business in California. Among other things, the bill would allow consumers to stretch out the payments on their second consecutive payday loan over four pay periods.
Five-Day Waiting Period Proposed
The other bill less irksome to payday lenders would ban them from offering a loan equal to more than half the amount of the borrower’s fourth consecutive loan. It would also impose a five-day waiting period before a sixth loan is made.
“This industry needs to be licensed and regulated,” says Shelly Curran, a San Francisco-based policy analyst with the Consumers Union, which pushed for the tougher measure.
When payday lenders first approached the state about legalizing their practices, “the industry did something very smart,” says Curran. “They insisted they weren’t making loans, but instead said they were offering deferred checking.” As a result, Curran says, payday loan operators now only need a check- cashing permit to operate in the state. Obtaining the permit requires having a felony-free record, filling out a form with the state attorney general’s office, and paying a $50 fee to get finger printed. “They don’t have to report anything,” Curran says.
Payday lenders are subject to federal statutes, including the Truth in Lending Act, and any state regulations, counters Choate. “The consumer advocates are trying to regulate what consumers want,” he adds. “They effectively want to prohibit us from being in business – it’s sort of like calling Prohibition the `Alcohol Distribution Reform Act.'”
Choate also finds criticism of his industry condescending to its clients. “Our customers are accused of being financial illiterates,” he says, asking why “an 18-year-old woman can decide to terminate a pregnancy but can’t figure out the cost of borrowing $100.”
In making the industry’s case in California, payday lenders spent at least $340,000 on lobbyists and another $200,000 on contributions to lawmakers, says Curran, who calls the figures “pretty significant” for an industry only in the state three years. Regardless, consumer advocates aren’t calling it quits. “We have every intention in the world of trying again next year,” Curran says.