By: Javi Calderon
California Lawmaker Pushing Payday Loan Bill
The state of California has always been known for its rich diversity. From the heat of San Diego to the chill of San Francisco, known as much for its beaches and board-culture as for its mountains and wineries, and as a melting pot for a multitude of ethnic groups. Even in politics, where the heavily democrat-leaning Hollywood stars saw one of their own, Arnold Schwarzenegger, elected governor – as a Republican.
Californians even exhibit a wide-range of opinions on the topic of payday loans. While California is known as one of the most progressive and aggressive states in terms of consumer protections, with the largest Consumer Affairs department in the country, consumers are still taking out more and more payday advance loans every year.
Despite the fact that local governments in Oakland, Sacramento, San Francisco and Oceanside have passed laws to restrict the location of payday lenders, a state lawmaker is promoting a bill that would raise loan limits for payday loans.
Charles Calderon, Democratic Assemblyman from Industry, California, authored Assembly Bill 1158, which would raise the maximum payday loan from $300 to $500.
Calderon insists the bill is intended to help poor and under-banked citizens in need of quick cash, not strap them into a cycle of paying off interest. Calderon states that cash advance loans are merely a necessary tool for those who do not qualify for traditional bank loans.
It is a fact that payday loan shops are more prevalent in low-income areas. Certainly this is a strategic move, but it is out of service and opportunity, or malice? A spokesman for the California Financial Service Providers Association claims that while payday loans are never intended as along-term solutions, the majority of customers report to be “very satisfied” with their loans. Is it fair to restrict the financial options of many for the mishaps and misfortunes of the few?
In an opinion piece, famed economist Thomas Sowell points out the faulty math that is used to slander payday loans. Most critics point out “exorbitant” and “abusive” interest rates, calculated in APR. Sowell points to a report published in a California paper that claims that a $45 fee on a $300 loan turns into a whopping 460% APR. Well, any middle-schooler can tell you that 45 is only 15% of 300.
How does a $45 fee turn into 460% or a cycle of debt? Convenience. APR is a formula for annual percentage rate – in other words, critics who judge payday loans by APR are assuming that the borrower is taking out a loan every two weeks for an entire year, which is not the case, payday loans are short-term loans. Or, they are simply using APR because the interest rates the equation yields is so high and eye-popping.
Unfortunately, the California payday loan scene seems convoluted with exaggerated numbers and blurred intentions. For the citizens to make educated, informed decisions, they will somehow need to get the real facts.
