Predatory Payday Loans a Growing Problem in California, Group Says

According to a September 20th press release of the Center for Responsible Lending, Californians get caught in a downward spiral when taking out pay day loans and end up paying over twice the amount borrowed in order to keep the loan floating. In addition, the Center for Responsible Lending press release maintained that payday loans are defaulted on by borrowers substantially less than credit card debt is defaulted on but pay much greater interest rates than credit card borrowers. (The press release stated that the default on credit card debt is about 4% to 6% whereas the default on payday loans is about 3%.)

By calculating the average number of loans per individual at a single payday loan establishment as seven, and the average number of payday loan establishments from which a customer borrows as 1.7, the Center for Responsible Lending arrived at a figure of 11.9 months as the average number of months in which a payday loan customer is borrowing what amounts to the same typical $254 over and over again. If the person is paying the typical fee of $45.00 for the loan, this amounts to paying $495.00 in interest rates and finance charges per year.

Last year, Congress capped the annual percentage rate (APR) that military personnel can be charged at 36% or payday loans. The law is scheduled to go into effect on October 1st of this year. The Center for Responsible Lending hopes to extend the cap on the APR to civilians in the near future.

The Center for Responsible Lending press release mentioned that the District of Columbia had reversed itself on its 1998 exemption of payday loan companies from the predatory lending laws, and now caps the APR for payday loan companies at 24%. The state of Oregon has recently capped payday loans interest rates at 36%, according to the Center for Responsible Lending press release. Virginia and Ohio are expected to debate the possibility of capping the APR on payday loans or else removing exemptions from usury laws during their current session this year.