Payday lenders charge annual percentage rates of 400 percent, even more, just to borrow a few hundred dollars. A new bill that could have lead to dramatic rate cuts took a beating in Sacramento on Monday.
The proposal would have given Californians the same protection as members of the military.
President Bush signed into law in 2006 an act limiting the annual percentage rate charged by Payday Lenders to soldiers to 36 percent. Assemblyman Dave Jones wanted to extend that to all Californians.
"These outrageously high 350 to 400 percent annual percentage rates are just unconscionable," said Assemblyman Dave Jones (D) of Sacramento.
But opposition to the measure from payday lenders was strong.
"A 36 percent APR cap is a prohibition of payday lending. There's no ifs, ands or buts about it," said Mark Thomson, a payday lender.
Payday lenders charge triple-digit interest rates for two week advances on paychecks. They say the loans are a quick fix for consumers with a short term need for cash. It quickly became clear the bill did not have the support of the committee.
"I think that there is need for increased consumer protection. And I'd like to see, but I'm not interested in seeing a prohibition," said Assemblywoman Liz Wolfe.
Assemblyman Jones quickly offered an amendment to his bill, taking out the 36 percent rate cap and leaving it open to future negotiations.
Committee Chairman Peter Nava offered an amendment of his own, adding to the bill 22 recommendations made by the Department of Corporations. Those recommendations would enhance authority of that department to regulate advertisements and disclosures and strengthen enforcement.
But that didn't make consumer activists who were there, happy.
"I think we're very disappointed that the committee is not committed to the core problem of the 459 percent interest. I think what happened with the military with the Pentagon, actually going to Congress asking them to change this, shows the depth of the problem," said Alan Fisher, from the California Reinvestment Coalition.
But in the end, the committee overwhelmingly voted to pass the bill with the amendments.
"So essentially, Mr. Chairman, the bills getting gutted," said the assemblyman who voted for the change.
"Yeah, we're going to make it better," said the Chair.
The Payday Lender Bill now goes onto the Assembly Appropriations Committee. There's likely to be many more amendments proposed before this thing gets to the floor for a vote.