Editorial: Time to say ‘no’ to payday loan sharks

by Editorial , Sacramento Bee

One can only imagine how the Golden State would shine if it had a plurality of state lawmakers with the moral character of Holly Petraeus.

Petraeus, wife of CIA Director and retired Army Gen. David Petraeus, has become an impassioned advocate for returning military veterans. In that capacity, she has taken on for-profit colleges and payday lending outfits that are trying to shake dollars loose from men and women who have served their country.

Yet instead of the likes of Petraeus, we have the Calderon brothers. Assembly Majority Leader Charles Calderon, D-Whittier, and Sen. Ron Calderon, D-Montebello, are the Assembly and Senate’s largest recipients of campaign cash from the payday loan industry. And both have played key roles in making California the epicenter for this predatory form of lending, as the San Jose Mercury News reminded us Sunday in an investigative report.

According to the Mercury News, the number of annual payday loans in California has increased from 10 million in 2006 to 12 million last year, even as more and more states restrict the practice. Some 17 states and the U.S. military have now effectively banned payday loans, which take advantage of low-income people seeking a cash advance on their paychecks.

At most payday shops, a borrower can get a loan in exchange for a postdated check, which he or she agrees to pay off in two weeks or a month. In California, lenders usually charge a 15 percent fee, or $45 on a maximum $300 loan.

Yet all too often, borrowers must take out another loan to pay off the previous one, pulling them into a spiral of debt. Over the course of a year, a borrower taking out multiple payday loans can end up paying an annual interest rate of 460 percent.

In 2006, the Department of Defense described payday lenders as "predatory" and a threat to troop morale and national security. Congress passed a law capping interest rates at 36 percent on payday loans made to U.S. military service members. That drove the industry to civilian clients and places such as California, where Charles Calderon a decade earlier had passed a bill that legalized payday lending, capping each loan at $300.

Calderon, who argues that payday loans are an essential form of finance in low-income communities, wants to now increase that cap to $500. He failed last session but is coming back with his bill in the next session.

While Calderon’s concern for people of marginal means is commendable, it can’t be ignored that he, his brother and other lawmakers have raked in campaign contributions from the payday loan industry. The two Calderons received more than $81,000 from the industry between 2003 and 2011. Just in the 2009-10 election cycle, the industry spent $586,219 on California elections, according to the nonpartisan National Institute on Money in State Politics.

As we put it in 2009, payday loans are a "modern-day form of usury." California needs to follow the lead of the Defense Department and other states and give this lending practice a pink slip.