Bill to Protect Military Personnel from Payday Lenders

California Assemblyman Ted Lieu introduced Assembly Bill No. 1965 in the State Legislature.  The Bill adds protections for members of the military that borrow from payday lenders.  The Bill contains the following key provisions:

1.    The ability for military personnel to defer payment on a payday loan
2.    The ability to opt for a repayment plan of 120 days
3.    The right of a military borrower to refuse to agree to binding arbitration
4.    The inability of a payday lender to charge any additional fee, interest, finance charge, etc. as a condition for granting a prepayment plan

The Bill also codifies several of the Community Financial Services of America’s (CFSA) Military Best Practices.  CFSA is a trade organization that represents payday lenders.  Some of these “best practices” included in the Bill are:

1.    A prohibition on the garnishment of military wages or salaries.
2.    A prohibition against contacting the military chain of command in an effort to collect on the loan

AB 1965 passed the Senate Judiciary Committee and the Senate Appropriations Committee.  When the Bill goes to the full Senate for debate, it is expected to be amended to require a minimum 120 day repayment term as well as a 36% interest rate cap. Currently payday loans have interest rates that average 459% and repayment terms that last for just two weeks. 

Assemblyman Lieu sponsored a press conference on August 24, 2006.  The key focus of this event was to solidify support for the amendment to include the 36% interest rate in the Bill.