Feb. 20, 2018: SIERRA SUN TIMES: “Safe Consumer Lending Act” to Protect California Families From Abusive High-Cost Installment Loans and Predatory Lending
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SACRAMENTO – Assemblymember Ash Kalra (D-San Jose) announced in a press conference last week the introduction of Assembly Bill 2500, the Safe Consumer Lending Act, a bill to protect California families from abusive high-cost installment loans.
AB 2500 would extend California’s current interest rate cap for consumer loans between $2,500 and $10,000. Under this proposed law, a $10,000 loan with a 12-month repayment plan would carry a maximum interest rate of 20%. Triple-digit, high-cost interest rate loans have forced families to be caught in an endless cycle of debt, which often leads to car repossession, wage garnishment, and even bankruptcy. This legislation aims to combat these types of financial abuses across the state and would level the playing field for lenders that are providing access to safe and affordable loans. Not all lenders are taking advantage of consumers, however, and reinstituting the rate structure for loans between $2,500 and $10,000 modestly levels the playing field for lenders that are providing access to safe and affordable loans. In so doing, it will cover both unsecured and secured consumer loans, including auto title loans.
“California has no shortage of predatory lenders. We see them pop-up around the state, especially in low-income neighborhoods. These types of loans, those with exorbitantly high interest rates, hurt hard working families the most,” said Assemblymember Kalra. “This is why I am proud to introduce Assembly Bill 2500, the Safe Consumer Lending Act. A high-cost loan may look like a solution, and more often than not, a person who is looking for immediate access to credit is in financial crisis—but really, these kinds of loans lead to long-term indebtedness.”
Assemblymember Kalra was joined by consumer advocates, faith leaders, borrowers, and community supporters, including the bill’s sponsor, the Center for Responsible Lending (CRL).
“It is heartbreaking to hear from borrowers who have been lured into these loans and have had their wages garnished or car repossessed. The predatory lending business model thrives off putting people into a debt trap, loan after loan,” said CRL California Policy Director Graciela Aponte-Diaz. “Assemblymember Kalra has been a true champion for working families and his bill will provide much needed consumer protections.”
“Interest-rate loans of 200 percent and higher for working families struggling paycheck to paycheck is criminal,” said Sen. Holly J. Mitchell (D-Los Angeles) about the need for greater protections that would be provided by AB 2500, for which she is a Principal Co-Author. “Compound irresponsible behavior by unscrupulous lending institutions with a recent federal proposal to end key consumer-protection measures for payday loans, and it is clear California must do more to protect families.”
Currently, there is no APR limit for installment loans of $2,500 to $10,000, which gives lenders the opportunity to charge borrowers triple digit interest rates.
AB 2500 would close a gap in California’s Consumer Financing Law (CFL) that is being exploited by predatory lenders, by extending the state’s interest rate cap for loans up to $10,000. This bill covers both unsecured and secured consumer loans. Secured loans can be secured by personal property including the borrower’s car. If the borrower defaults on the loan, the lender can repossess their car.
Assemblymember Kalra’s bill comes as the Trump Administration is actively rolling back important federal consumer protection regulations, including delaying the implementation of the Consumer Financial Protection Bureau’s (CFPB) proposed rule on payday and car-title lending. Inaction at the federal level means that California families will highly depend on the state legislature to curb predatory lending and abusive high-cost installment loans.
According to a 2016 annual report by the California Department of Business Oversight (DBO), 58% of installment loans of $2,500 to $10,000 had 100% APRs or higher. In 2014, according to the National Consumer Law Center, these loans had a default rate of 20% to 40%, which makes it a win-win for predatory lenders since they’re are able to recoup the loan amount and profit within 6 to 12 months of repayment, and obtain a tax write-off for any unpaid principal.
AB 2500 is co-sponsored by the African Methodist Episcopal Church (AME) - 5th Episcopal District, Asian Law Alliance, Coalition for Humane Immigrant Rights of Los Angeles (CHIRLA), and Unidos US, formerly the National Council of La Raza, as well as the Western Center on Law and Poverty.