Features

SACRAMENTO — Since its inception four years ago, California’s payday loan industry has tripled each year and now makes 1 million transactions a month from 3,400 storefronts. 

But consumer activists say the industry, with its high-fee, high-interest loans, unfairly taps poor people who can’t afford to go elsewhere. 

That’s why, said first-year Assemblyman Dario Frommer, D-Los Angeles, he wrote a bill to reform the industry. 

“I think we need to engage in regulation of this industry,” Frommer said. “While it provides a valued service for many people, there have been abuses and we want to make sure people aren’t being taken advantage of.” 

But Frommer’s bill was largely written by an industry lobbyist. An Assembly legislative analyst, one of a group known for their often-bland descriptions of proposed legislation, called Frommer’s bill “specious” and with consumer protections that should “be ensconced in the Code of Illusory Benefits.” 

Also, payday lenders have given generously to Frommer, contributing to his campaign and key Assembly Democratic leaders who in turn funneled more money to Frommer. 

With Frommer’s bill on the table, the Assembly derailed another one by state Sen. Don Perata, D-Oakland, that had already passed the Senate and had the support of consumer groups. 

Now both bills are in “study” in the Assembly, and California’s chance to join other states in reforming the industry has faded away for another year. 

“The result is California consumers are stuck holding the bag for another year,” said Shelly Curran of Consumers Union. 

With a payday loan, a customer writes a check for $300, gets $255 in cash and the lender agrees not to deposit the check until the customer’s next payday. 

Industry officials said they provide a necessary financial service to poor urban and rural areas abandoned by traditional banks. 

Consumer advocates, however, call it predatory. Trudy Robideau, a former customer turned consumer advocate, said customers often don’t have the cash to pay off the loan come payday and end up renewing it — adding up to annual interest rates of 400 percent or more. 

Perata’s bill, which Curran and Robideau supported, would allow customers to pay off their loans in installments over three months. That would keep borrowers from having to roll over their loans. 

Last year, a Perata bill passed the Senate but died in the Assembly. He weakened some parts of his plan this year, where it again passed the Senate. This year, he and consumer activists thought, they had a chance. 

But as the industry has grown, so has its political influence. 

And although some payday lenders like Frommer’s bill — primarily Carson, Calif.-based Nix Check Cashing — most companies like neither, said John Rabenold of Check ’n Go of California. “These bills are telling consumers they don’t know enough for themselves, and the government is going to make these decisions for them.” 

Rabenold and Tom Nix, owner of Nix Check Cashing,, cite a Georgetown University study, sponsored by a national check-cashers association, that found a majority of customers were happy with the service. 

But a 1998 report by the Consumer Federation of America said borrowers often “become mired in debt and renew cash advance loans every week or two. Payday loans are structured to make it difficult for consumers to pay in full at the end of the loan period.” 

That, Perata said, is one of the reasons he pushed his bill. 

Study, Perata said, is “tantamount to killing” his bill. He said he’s stunned that Democrats representing districts with high unemployment rates and low incomes were responsible. 

“I just don’t get it,” he said. “Normally, you come up here to protect the interests of those who sent you here and you advocate for them. This turns that on its head. It’s a testament to how much money they’re making.” 

That money has spread to some of the state’s leading politicians. Since the beginning of 2000, the industry gave $165,800 to political funds led by Frommer; Assemblyman Dennis Cardoza, D-Atwater; Assembly Speaker Robert Hertzberg, D-Van Nuys: and Assemblyman Herb Wesson, D-Culver City. 

Two of the largest recipients of industry money are Cardoza and Wesson, who is considered the odds-on favorite to be the next speaker. 

An additional $92,000 was contributed to PACs directed by Cardoza, Hertzberg and Wesson. Those funds gave more than $17,000 to Frommer’s campaign last year. 

When the Assembly Business and Professions Committee voted to send Frommer’s bill to an interim study, Wesson and Cardoza were among the votes, though Cardoza doesn’t sit on that committee. Wesson also voted two months later to defer action on the Perata bill. 

Study hearings will forge a compromise between the two bills, Frommer said. Committee chairman Lou Correa, D-Anaheim, said the bills will be heard in January. 

Perata said his bill has already had eight hearings. 

But Frommer said the extra time gives lawmakers a chance to figure out the industry’s proper “niche” in California. 

“We’re trying to help people who have chronically abused this to get out of debt,” said Frommer, who also defended the industry he’s trying to reform. “When the money’s tight, it’s cheaper to get a payday loan than to bounce a check.” 

Robideau disagreed, saying the industry “preys on desperation.” 

Nix and Rabenold said most of their customers have full-time jobs and checking accounts and only use the service occasionally for unforeseen emergencies. Plus, further regulation will just lead lenders to partner with nationally chartered banks able to charge unlimited interest rates. 

Whatever the Legislature finally does, Robideau said, she’ll keep pushing for the state to rein in the industry. 

“You can’t get them out of California,” she said. “They’re here, you can’t eradicate them. But you can eradicate the greediest behavior.” 

——— 

On the Net: 

Read the bills, SB898 by Perata and AB1581 by Frommer, at http://www.leginfo.ca.gov