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California May Raise Payday Loan Limit


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By: Javi Calderon

The State of California, one of the states most active in the fight for consumer protections, is considering a motion to raise the limit for payday loans from $300 to $500. The measure proposed by Assembly leader Charles Calderon is currently being considered in the state Assembly.

In 1996 Calderon wrote the bill that initially allowed payday loan lenders to enter the state. Since then lawmakers set the cap for borrowers at $300.

The motion to raise the cap is not a new one, however. In 2009 the California State Assembly had passed a bill that would raise the cap to $500 before it died in the Senate. That bill also carried certain consumer safeguards that Calderon’s 2011 version does not.

The bill, AB 1158, originally proposed subtle changes to California’s credit union laws. It was then altered to regulate the advertising of payday lenders online. The day before the assembly went in to recess, Calderon completely changed the amended text with the proposal to raise the cap on payday advance loans. The safeguards included in the 2009 attempt are not present in Calderon’s 2011 attempt.

The bipartisan debate brings into question more than whether short-term credit loans help or hurt the consumer. A study of industry donations shows that Charles Calderon received more money in campaign contributions from cash advance lenders than any other member of the assembly. His brother, Senator Ron Calderon, tops the list of all state legislators.

While most critics connect the dots between the donations and the new piece of legislation, many fence sitters debate who came first, the chicken (Calderon’s positive stance on payday lending) or the egg (the donations).

Calderon argues that his constituency, East Los Angeles, is one of the poorest in the country and that without payday loans many of its residence would be forced to go elsewhere when in need of quick cash.

He points out that poorer neighborhoods are more likely to be under-banked; many have poor credit, and utilize non-traditional financial products like car title loans, check cashing and payday advances.

Interestingly, in 2007 the state’s Department of Corporations suggested raising the ceiling on payday loans to either $500 or even $750. California is currently tied for the lowest maximum loan limit.


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