All too often, we are given advice from a variety of sources (whether it be friends, family or national news outlets), and though the intentions may be upright and noble, without a proper education on a particular subject, we can sometimes be mislead or misdirected. One subject of much conjecture, debate and misunderstanding is the consumer cash advance. In California, payday loans have become a point of considerable contention for many, who unfortunately have not been truthfully informed on the topic. Many people had formed the opinion that companies that are involved in offering cash advances are predatory lenders who will stop at nothing to make a quick profit. Although the industry did have somewhat shaky beginnings, through the years, there has been a maturation in operators and in government regulation.
Legal Status: Legal
Interest Rate (APR): 460%*
Maximum Loan Amount: $300
Minimum Loan Term: Not Specified
Maximum Loan Term: 31 days
Finance Charges: 15% of the amount advanced
To qualify for an online payday loan in California, you must:
A brief history:
What is now a billion dollar industry in California, started out like most commercial endeavors, slowing growing from sporadic independent operators. Prior to the mid-90’s, California payday loans where an unregulated portion of the operation of check cashing businesses. At that time, interest rates and fees were determined solely by the individual businesses – with consumers having very few options in terms of cheaper borrowing. That was, of course, until the majority leader of the California State Assembly, Senator Charles M. Calderon (D)
authored Senate Bill 1959. SB 1959 provided specific rules and regulations for companies that supplied or planned to supply cash advances anywhere in the state.
With the new bill becoming a law in 1997, consumers found themselves finally being protected from the predatory lending conduct that was being practiced my a mish mash of pawn shops and check cashers, who’d just happened upon a new cash-flow stream & were milking their customers to the best of their ability. The new law determined that cash advances made to consumers were to be limited to no larger than $300, and carry fees limited to 15% – or $45 for the maximum loan amount. Borrowers were also limited to only one advance at a time, and were not allowed to obtain a second loan to pay off the first loan – this provides consumers with a sort of protection from themselves – in the very real sense that some borrowers might get themselves into an endless cycle of inter-connected loans. Under the law enacted in 1997, California payday loans originators were also directed to provide terms of up to 30 days for consumers to repay
Contrary to what many have been falsely lead to believe, today’s cash advance industry in California has become a viable and legitimate alternative source of finance for millions of borrowers; in 2007, over eleven million payday advances were made in the state. Some media outlets and detractors would have consumers believe that the average person who goes after an advance is someone who lives well below the poverty line, is minority and has no real assets – this misconception is outdated and overstated. The truth is that nearly half of all of California payday loans are made to homeowners, who are gainfully employed, but simply find themselves facing unexpected expenses that call for a quick cash infusion. For these people, the rumors of exorbitant fees and unfair practices are simply not true.
Some reports blur the lines of creativity and truth with statements that improperly calculate the interest rates of cash advances. These reports show that the APR or (annual percentage rate) for the average cash advance is somewhere between 400% and 460% (depending on who’s doing the reporting on any given day). The simple truth is that a payday advance is typically made for only up to two weeks; the time that it normally takes for a person to obtain their next paycheck. Of course, you can come up with a huge interest rate calculation on any short-term loan if you take it out of its proper context and terminology. Ever borrowed or loaned out ten bucks to a friend or relative, who promised to pay you back in a couple of weeks with two or three dollars on top of it – just to show their appreciation? Well, if you have, you’ve been party to a loan that some would say was at up to 800% APR. Annual percentage rates are out of place when attached to any short-term financing, especially when the loan is for less than a month.
Increased consumer protection:
In 2003, to provide enhanced protection to the consumer, Senate Bill 898 (authored by Senator Persata) would become the Deferred Deposit Transaction law as it was passed in the state of California. This new and improved law would create more stringent regulation for the industry, requiring all businesses offering California payday loans to be licensed and registered with the state. This registration process would become the primary method of qualifying companies prior to allowing them to enter in the industry. Cash advance lenders must provide full disclosure to the state – with reporting responsibilities to the state’s Department of Corporations. With rules and regulations firmly in place to protect the consumer, the industry has grown into a legitimate financial service segment that caters to an underserved client base.
The final word:
California payday loans operations are offering up a valuable service to a broad consumer base, who utilize services like these to bridge financial gaps. Where it not for the availability of such finances; many families (who some have claimed are victims of the industry) would be left with little or no alternatives to save their transportation, living quarters, etc. On a yearly basis, this industry contributes over one billion dollars to the state’s economy, and creates & maintains jobs. Before taking the opinion of an uninformed person, who’s trying to sound knowledgeable on the topic, take a few minutes and review the state’s legislation – it’s been developed to create the best possible borrowing conditions for you, the consumer.
Additional California Payday Loan Resources: