Payday lenders, which typically offer cash advances on paychecks, are now offering the same to Californians who are receiving unemployment checks. Someone with a $300 a week benefit can write the lender a personal check for the same amount and walk out with $255 in cash after paying a $45 fee. The lender then cashes the check a couple of weeks later.
On an annualized basis, the interest rate is 459 percent.
Unemployed nurse Lolita Moore says the expensive loan fills a gap.
"If there are no other alternatives at the time, you know, it's either have your lights turned off or you get a loan and continue to live," she said.
Under a new proposal, Assm. Nancy Skinner, D-Berkeley, wants to cap the interest rate on payday loans covered by unemployment checks to 36 percent.
Federal law already caps the interest rate for the military at 36 percent. The proposal is a state version aimed at extending it to California's unemployed.
The loan industry points out the cap forced stores to cut back payday loans to military personnel because the rate did not cover their cost; it warns the same could happen to the unemployed.
"What in effect you will do is limit the choices available for short-term credit in the marketplace for consumers," California Financial Service Providers Association spokesperson Greg Larsen said.
But consumer groups say the help is needed to break the cycle of debt.
"But the reality is, most borrowers in California who start a payday loan end up taking out 10 loans in one year," Center for Responsible Lending spokesperson Lara Flynn said.
Moore hopes the rate cap is approved in case she needs to get another payday loan.
"I think it will make life a little bit easier and show a little bit more sensitivity to people that have less," she said.
Numerous attempts to regulate the payday industry have failed. The industry spent at least $2.5 million lobbying Congress last year.