Declaring state lawmakers too beholden to lobbyists, a range of California leaders are calling for curbs on payday lending that will pressure or, if need be, bypass the Legislature in order to better protect consumers.

The reactions from statewide officials, city leaders and philanthropists come in the wake of a Bay Area News Group investigation published Sunday outlining the hazards of payday loans and the industry's warm reception in the state Capitol.

Burdening the working poor with annual interest rates as high as 460 percent, payday loans have grown in California, even as 17 states and the U.S. military have effectively banned the cash advances on paychecks. In contrast, state lawmakers here are now pushing a bill to expand lending amounts and fees, while accepting evermore campaign contributions from payday lenders.

Insurance Commissioner Dave Jones is among those supporting stepped-up regulations on payday lenders, either through a ballot measure or new legislation.

On Monday, two state senators joined Insurance Commissioner Dave Jones in calling for stepped-up regulations on payday lenders, either through a ballot measure or legislation.

"People are having to forgo food on the table or clothes on their backs or transportation in order to pay back these loans," Jones said. A former Assembly member, Jones said he introduced a bill in 2007 similar to those seen in other states that cap interest rates at 36 percent because "the evidence was really compelling that the rules needed to be changed in California."


But he added that because payday lenders are "extraordinarily influential," Sacramento lobbyists persuaded Assembly leaders to shelve his bill.

Two senators who sit on the committee that will soon hear the industry-backed bill to expand payday lending -- state Sens. Ellen Corbett, D-San Leandro, and Mark Leno, D-San Francisco -- agreed with Jones that interest rates need to be capped.

"The industry needs serious reform due to the financial damage it has caused many families," Leno said in a statement. "Allowing borrowers to get into deeper debt is not a realistic solution."

Corbett said that because lobbyists have repeatedly blocked bills to cap interest rates on payday loans, "if we can't solve this, maybe a ballot measure is the way people will need to go."

Industry spokesman Greg Larsen of the California Financial Service Providers Association, defended the payday lenders and their campaign contributions, which have more than tripled in the past decade.

"Consumers often say, 'It's the best option for me right now,' " he said. "You hear this anecdotally from consumers on a consistent basis."

Yet a growing number of skeptics are joining consumer advocates in efforts to protect low-income borrowers from the debt trap that often accompanies payday loans. Lt. Gov. Gavin Newsom -- who as San Francisco mayor led efforts to fight payday lending -- told this newspaper in April that curbing the industry was one of his top priorities, and that he was in discussions about a 2012 ballot measure. Newsom said at the time that the Legislature has repeatedly failed to enact meaningful regulation. "These guys just buy us off," he said then.

On Monday, Newsom's spokesman said he was now focusing exclusively on jobs and the economy and had no additional comments.

At the local level, San Jose Councilman Ash Kalra said he will push for a payday lending moratorium, as soon as the city's staff completes a study on San Jose's payday lenders. And on Tuesday, the East Palo Alto City Council will discuss ways to limit the lenders from coming to their small, working-class town.

Cities and counties can't limit interest rates, but they can -- and have up and down the state -- use local land-use and permitting laws to curtail new businesses and restrict their scope.

"By taking action at the local level, we're showing the seriousness of the issue and doing what we can to protect our residents," Kalra said. "But obviously the greater role lies in Sacramento."

Many of the local efforts are receiving funds for research, education and advocacy from the Silicon Valley Community Foundation, the largest funder of Bay Area nonprofits. The foundation has directed almost $1 million in philanthropic donations to its anti-payday lending campaigns, which include stepped-up local rules.

Payday lenders argue they are already adequately regulated in California, where loan amounts have been capped since 1996. A pending bill by Assemblyman Charles Calderon, D-City of Industry, would increase limits on payday loans from $300 to $500, increasing one-time fees from $45 to $75.

Interest rates on the typical two-week loan are calculated on an annual basis, which amounts to 460 percent.

But lenders have limited recourse to go after delinquent borrowers, and can't pursue criminal charges.
Industry spokesman Larsen challenges the growing nationwide movement to cap interest rates at 36 percent -- prompted by the U.S. Department of Defense -- saying it has limited short-term, low-cost credit options for needy consumers.

Although payday loans are advertised for one-time emergencies, state statistics show the vast majority of borrowers, such as Mark Laws, take out successive loans, piling fee upon fee.

Strapped for cash with a daughter to raise and a wife working on a college degree, Laws first went to a payday lender in 2001 to buy an airline ticket to his mother's funeral in Illinois. The Mission Street Check 'n Go store in San Francisco was near Al's Cafe Good Food, where Laws worked as a $10-an-hour cook.

After postdating a $300 check, he got $255 in return. But two weeks later, his cash flow had not improved, and he had to repay his loan. Laws found another payday shop, Money Mart, to pay off the Check 'n Go loan. "After that I just kept cycling," said Laws, 48.

Ten months later, Laws had paid fees that added up to $1,000 for the $300 he originally borrowed.
Laws said he doesn't blame payday lenders for seeking a profitable market. He just wishes more people knew about alternatives such as the credit union he eventually turned to for better loan terms.

"Poor people need a place to go when they really need it," he said.