Payday Loan Times

Gov. Arnold Schwarzenegger promised Wednesday to work for the “swift passage” of legislation that would help the state crackdown on onerous California payday loan practices targeting the military.

The governor’s endorsement of Assembly Bill 7 followed the release of a draft report from his top military advisers, who urged him to step in.

The task force, which included some of the top military commanders of San Diego area bases, cited an alarming increase in revoked security clearances that threatens military readiness in times of growing world tensions and which has also taken a personal toll on families of those struggling to climb out of debt.

“The governor is encouraged that this legislation reflects the recommendations of his advisory council on military affairs,” said Bill Maile, a spokesman for Schwarzenegger. “The administration is a sponsor of the bill and will work with the authors to ensure its swift swift passage.”

Assemblywoman Lori Saldana, D-San Diego, and a co-author of the measure, said the task force recommendation will boost its chances. A similar effort to curb military payday loans failed in the Senate last year.

“It’s important that we act quickly to protect our military families,” she said.

Meanwhile, a nationwide consortium of payday loan companies announced Wednesday that it has adopted a series of self-policing measures aimed at protecting all borrowers, not just the military.

In most cases, payday lenders offer cash advances for a fee. Generally, the loans are short term, until the next payday. When fast cash loans are not repaid on time the annualized interest can quickly grow to triple digits. But, those who cannot repay wind up borrowing more for longer periods of time, accruing a crushing amount of debt quickly, according to critics.

Congress imposed a 36 percent interest rate cap on loans to service men and women effective Oct. 1, but failed to specify which federal or state agency would have police powers. The measure by Saldana and Assemblyman Ted Lieu, D-Torrance, would conform California law with federal law, thereby giving California the ability to act.

“Without action by California, the state will have no authority to enforce the provisions of the federal law, effectively diluting the protective measures of the federal law,” the task force noted.

By conforming with federal law, the state could also enforce other standards designed to protect the military. Among those: allowing military personnel to pay off cash advances early to avoid higher costs. Service members also could not use one loan to pay off another, the task force reported.

However, the task force report is restrained, steering away from proposals to restrict locations, advertising and other business practices targeting the military – tough steps politically and legally.

As states like California pursue crackdowns, the no faxing payday loan industry has responded with a $10 million consumer education campaign. The program, operated by an umbrella agency called the Community Financial Services Association of America, would provide more time to repay loans without additional fees. The effort also includes a ban on advertising payday loans for “frivolous purposes.”

“These enhancements … are part of an ongoing effort to respond to the concerns of policymakers and protect the financial well-being of our customers,” Darrin Anderson, the association’s president and head of a no fax payday advance company based in Kansas, said in a statement.

A skeptical Saldana said: “It reminds me of the tobacco industry. They are clearly selling a bad product with negative impacts on people’s financial health.”

SOURCE: The Union-Tribune