The Senate Banking Committee today approved AB 377 after much debate, a measure disguised as reform of the predatory payday loan industry. In reality it not only maintains but worsens the status quo.

The bill will next head to the Senate Judiciary and Appropriations Committees.

AB 377 as presented contained a number of flawed provisions, none of which addressed the long-term financial harm that the payday debt trap does to consumers. These provisions included raising the loan amount, thus putting borrowers into greater payday loan debt, and offering borrowers one problematic repayment plan per year.

California, often a bastion of consumer protection, continues to capitulate to the payday industry rather than following the progressive lead of 15 states, the District of Columbia and the Department of Defense with responsible interest limits on small loans. They have decided to make sure that their consumers are protected from usurious 459% rates on payday loans, protecting just over one-third of all Americans in the process.

Payday lending supporters claim that payday loans are the only short-term credit options for the working poor living paycheck to paycheck. But data suggest that many borrowers have good credit before they get caught in the payday debt trap, and it is often payday loans themselves that lead to reduced credit options, a weakening of borrowers' credit scores and, most unfortunately, bankruptcy.

Data from researchers at the Chicago Federal Reserve, the University of Pennsylvania and Vanderbilt University suggest that most payday borrowers do have access to payday alternatives, such as credit cards with at least $1,000 in available balance, and since payday lending requires a checking account payday borrowers already have access to mainstream banking institutions.

Payday lenders take advantage of borrowers who are desperate for cash to ensnare them in the financial quicksand of repeat borrowing. Clever marketing, overwhelming availability and ease of the transaction make these predatory products seem like an oasis to the cash-strapped borrower.

"Just because people want payday loans doesn't make them good idea, and doesn't mean they can afford to pay them back either," said Paul Leonard, director of the California office of the Center for Responsible Lending. "Like the dangerous subprime loans that brought our economy to the brink, payday loans are just bad news."

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