A bill has made it to the Senate in California that will increase limits on payday loan amounts. Assembly Bill 1158 would increase lending limits to $500. This is up from the current limit of $300. Currently, although the loan amount may be up to $300, those taking out a payday loan of this amount only receive $255, and have two weeks to pay it off.
The majority of borrowers cannot pay this back in time and are forced to take more loans. This is the point where the cycle begins to spin out of control. Many consumer groups feel any increase in limits would only worsen the problem. They maintain that if the Senate approves, it must be with amendments that will offer more protection to borrowers.
The potential damage is no surprise to Congress. They have banned members of the military form taking out payday loans for fear they inhibit troop readiness. While some states have seen success in reducing some of the damage done by payday loans with rate caps, the industry is too influential in Sacramento. Consumer groups here have pretty much abandoned that route. These amendments are a necessary piece of this bill if a huge increase in economic damage is to be avoided.
Suggested amendments include a limit of 6 loans per household, the requirement that lenders actually assess a borrower’s ability to pay rather than simply offering a loan to everyone who applies, and an increase in the time to pay the loan back from 2 weeks to 31 days. These amendments could go a long way toward mitigating some of the potential risk associated with payday loans.