California acknowledges that 36% APR is not feasible

The California Assembly's banking and Finance Committee yesterday took a stand against a 36% APR rate cap in that State: Bill to limit payday lenders defanged.

In doing so, they acknowledged that a 36% cap equates to a prohibition on payday loans: "'I'm not interested in a prohibition,' said Assemblywoman Lois Wolk (D-Davis). 'At the moment, there is no alternative to the products that meet the same needs that payday lending provides.'"

While lenders need to continually improve their efficiency and bring their costs down in order to remain competitive, a rate of 36% APR is simply not feasible. In their 2004 study, Ernst & Young found that it costs the typical payday lender $20.66 to issue a $100 payday loan in Canada. At 36% APR, the fee on a $100 payday loan for 14 days would be $1.38.