Assembly fails to approve bill to protect consumers from predatory installment loans
AB 2500 (Kalra) Would Have Capped Interest Rates on Loans Between $2,500 and $5,000
May 31, 2018
SACRAMENTO, CA – A bill that would have protected Californians from high-cost predatory installment loans was defeated today in the California Assembly after intense lobbying by the financial industry. AB 2500 (Kalra) was supported by a coalition of over 100 civil rights, economic justice, faith-based, and consumer groups, including Consumers Union, the advocacy division of Consumer Reports. AB 2500 was the first bill of its kind to advance to the Assembly floor since California deregulated its lending laws in 1985.
“State lawmakers have squandered a historic opportunity to protect vulnerable working families from predatory lending practices that trap them in long term debt,” said Suzanne Martindale, senior attorney with Consumers Union. “Californians who struggle with high-cost installment loans end up falling deeper in debt and can face penalty fees, debt collection lawsuits, damaged credit, and even bankruptcy. AB 2500 would have provided much needed protection to Californians living paycheck to paycheck by setting reasonable limits on installment loan interest rates.”
Martindale added, “At a time when the federal Consumer Financial Protection Bureau (CFPB) under acting director Mick Mulvaney has rolled back its efforts to rein in abusive financial practices, it is critical for states like California to take action to protect consumers. California is long overdue to restore interest rate caps on these high-cost loans. We will continue to push for sensible safeguards for consumers who take out installment loans so they are treated fairly and can manage their debts responsibly.”
AB 2500 (Kalra), the Safe Consumer Lending Act, would have applied a 36 percent rate cap on loans between $2,500 and $5,000 and restricts ancillary fees. A 36 percent rate cap already applies for active duty servicemembers under the Military Lending Act, but veterans and other civilians do not have the same protections unless states step in. California law currently permits high-cost lenders to issue consumer loans of $2,500 or more with triple-digit interest rates. Although loans below that amount come with interest rate caps, some lenders have evaded the limit by pushing borrowers into larger loans than they requested so they can charge higher interest rates. California Department of Business Oversight data has shown that lenders making triple-digit loans at these amounts put their borrowers at serious risk of default; some have default rates as high as 40 percent. Given how much they must pay in interest charges alone, borrowers may manage to pay enough to make the lender a comfortable profit before defaulting, so the lender is in a win-win situation.
Michael McCauley, email@example.com, 415-431-6747, ext 7606 (office) or 415-902-9537 (cell)