By: Javi Calderon
San Mateo County Piggybacks Popular Payday Loan Changes
Saddled with a California state law that allows payday loan lenders to charge 15% on short term loans of less than $300, San Mateo County is considering following the lead of other cities in the state by regulating the industry through things like zoning restrictions, limiting hours of operation, and permits.
Unable to supersede state law, and unable to sway a hesitant Congress to pass further restrictions, cities like East Palo Alto, Oakland, San Jose and Santa Clara are taking it upon themselves to opened their bag of tricks and devise creative ways to slow the industry.
Santa Clara, however, is not looking to simply slow the payday lending industry; they want to end it all together. County supervisors have agreed to a 45-day moratorium to prevent new cash advance lenders from opening while they draft legislation to either end or severely stunt the industry.
Despite the fact that many local governments are taking the law into their own hands, and that the state is considered a pioneer in consumer protections, Californians continue to take out more and more payday loans. Furthermore, the state Legislature is considering raising the maximum loan amount from $300 to $500, thus suggesting that there is a lack of communication, if not rampant disagreement, between the population and its elected officials on this issue.
Lets review the law that is causing all this commotion. Under California state law payday lenders can charge 15% on loans of $300, to be paid back in either two weeks or a month. Yes, the APR is over 400%, but it doesn’t take a statistics professor to understand 15%. As in $15 out of $100, and $45 out of $300. Not at all an unreasonable amount to pay for a high risk, short-term loan.
If you don’t make more than $300 a month, then you have no business taking out a loan of that amount. If you do make more than $300, then you can find a way to repay $45 in a month. Lawmakers and do-gooders get caught up in annual percentage rates that are not relevant for a two week, or month-long loan. Congress is playing this right by taking it slow.
By now, everyone who follows the payday loan industry knows the debate: critics argue that the loans prey on the poor, while supporters argue the need for a free-regulated short-term lending market and the high cost of the alternatives. While their citizens seem to demand the product, the legislature of California is wise to give them what they want.
What gets lost in this debate is that the solution doesn’t have to be black or white. It does not have to be an unregulated payday lending market or no payday lending at all. Congress can pass careful legislation to protect consumers while still allowing them to find the financial products they want.