Controversial payday loans targeting soldiers returning from Iraq are now in the crosshairs of politicians.
Assemblyman Ted Lieu, a Torrance Democrat, introduced a bill, AB7, that would tighten state enforcement of 36-percent annual interest rate caps on loans to military personnel and their families, consistent with recent recommendations by the Department of Defense.
Lieu is a reservist in the Navy’s Judge Advocate General corps and is familiar with the issue having been both a prosecutor and a defense attorney in cases involving military debtors, who face penalties far stiffer than foreclosures, repossessions or dings on credit reports. Under military law failure to pay debts is considered a crime, and once personnel are charged with it they can’t be deployed and may even face discharge.
“This is a matter of national security,” Lieu said. “AB7 is a very important bill because it sends a clear message that California will not tolerate unscrupulous lending practices that take advantage of our military personnel and their families.”
The payday loans have drawn attention as veterans have complained about the interest rates on the loans, and about being forced into a cycle of repeatedly drawing them often to pay off a prior loan, sometimes with interest rates topping 400 percent.
A recent study conducted by Stephen Graves, a professor at California State University, Northridge, showed that members of the armed forces are easy prey because of low wages, limited financial experience and isolation at bases.
So far Lieu’s bill appears to be gaining support. It was approved by the Assembly Committee on Banking and Finance on a unanimous vote last week and sent on for further consideration.
The area adjacent to Camp Pendleton has a large concentration of payday lenders, as does Los Angeles County. The bill also targets automobile loans, rent-to-own property packages and tax refund anticipation loans.
Plain English
Securities and Exchange Commission Chairman Christopher Cox tends to prefer John Grisham, the writer of legal potboilers, to arcane financial statements.
And now he’s taking that preference straight to Wall Street in a crusade that so far has produced mixed results.
During a recent speech at USC’s Marshall School of Business, Cox told local business leaders that a scientific dissertation written by a Ph.D. candidate was easier to read than a corporate proxy statement. And that complexity, which he called unnecessary, has hindered transparency and understanding by shareholders.
“When you get that prospectus or that proxy statement in the mail, do you immediately plunk down in a comfortable chair and read it?” Cox asked the group, getting a resounding “no” as an answer through a show of hands.
Cox said the SEC in the coming weeks will continue to push for financial statements particularly proxies that report executive compensation that are more accessible to John and Jane Q. Investor. However, Cox acknowledged, proxies filed this year under proposed “plain English” rules have been less than satisfactory. “We are disappointed with the lack of clarity,” he said.
Cox’s disappointment was supported by a Corporate Library study of 100 companies that have already reported under the newly proposed disclosure rules. The corporate governance think tank found that sums of money reported under the heading “other annual compensation” in 2006 more than doubled from 2005.
This apparently was caused by a new requirement that companies report all perks worth at least $10,000 the old requirement was $50,000. But the proxies failed to describe the specific perks and aren’t required to do so under the proposed rules. It’s unclear whether the SEC will amend the proposed perk reporting rule.
More Debt
Like other big mortgage lenders, Countrywide Financial Corp. has taken its hits as the housing market has slowed and defaults grow in its subprime and other portfolios.
But now the Calabasas mortgage giant appears to be hoping that some additional consumer debt could help its customers pay off their mortgages.
Countrywide has teamed up with First USA, a credit card company, to “make home financing more rewarding” by offering a card that awards a $50 credit toward reducing mortgage debt for every $2,500 spent on the card.
“For more than 37 years, Countrywide has been dedicated to helping Americans realize the dream and benefits of home ownership,” said Ted Bowers, a senior vice president at Countrywide Bank, in a statement.
A caveat for those who think they might earn the $50 mortgage credit monthly by paying down their Countrywide mortgage with the card: Countrywide won’t allow that. It has to be used to purchase other goods and services.
Staff reporter Jabulani Leffall can be reached at (323) 549-5225, ext. 228, or at
[email protected]
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