On October 10, Governor Gavin Newsom signed Assembly Bill 539. The law places restrictions on predatory lending practices in California, he said, “creates debt traps for families already in financial difficulty.”
Critics say the lenders who offer these high-interest loans target disadvantaged people, including large numbers of black and brown consumers living in some of the state’s most underserved census tracts. These are Californians who are typically denied traditional bank loans due to bad credit or lack of collateral. However, the high interest rates on these loans can be prohibitive.
According to documents provided to California Black Media, a LoanMe Inc. loan of approximately $ 5,000 would require repayment of $ 42,000 over seven years at an annual percentage rate of 115%! Sometimes taking interest rates on loans as high as 200%, in addition to hidden fees, predatory lenders, critics tell us, typically structure their loans in such a way that they force people who sign up to constantly borrow again. money to repay the amount. debts they already have.
“Many Californians living paycheck to paycheck are exploited every year by predatory lending practices,” Newsom said. “Not taking advantage of high-interest, high-cost installment loans pushes families further into poverty instead of withdrawing them. These families deserve better, and this industry must be held accountable. “
The new legislation limits the amount of interest that can be charged on loans ranging from $ 2,500 to $ 10,000 to 36%, plus the federal funds rate.
“Gov. Newsom’s signing on AB 539 sends a strong message that California will not allow lenders to thrive with high cost loans that often leave consumers worse off than they started out with, ”the member said. Assembly Monique Limόn (D-Santa Barbara), co-author of the invoice. “I am grateful to the broad coalition of community groups, religious leaders, local governments and responsible lenders who have supported this historic achievement and helped us garner strong bipartisan support for this legislation.”
Limon has been campaigning for the passage of AB 539 for more than two years now. She is also a financial education champion who educates consumers about the dangers of high interest loans.
Assembly member Timothy Grayson (D-Concord), co-author of the bill, said the governor’s signature by the governor means an end to the worst types of predatory lending in the state.
“Californians deserve real access to capital, not predatory loans that trap them in perpetual payments and compound debt,” Grayson said. “We must do more to protect financially vulnerable and hardworking families from predatory lenders who profit from their devastation.”
Figures from the California Department of Business Oversight (CBO) show that in 2016, the total amount of payday loans in the state was $ 3.14 billion. The CBO also said seniors are now the largest group to take out payday loans, and more than 400,000 consumers in the state took out 10 payday loans in 2016. One-third of those high-cost loans ended up in default.
Not everyone is cheering for the passage of AB 539. These opponents say the bill is restrictive and undermines the values of free market capitalism.
The California-Hawaii section of the NAACP opposed the bill, arguing that it limits options for poor African Americans who need to borrow money in an emergency.
“We are deeply concerned about the impact AB 539 will have on small businesses and consumers. As proposed, AB 539 will limit the ability of lenders to offer a variety of short-term credit options to borrowers in need. the California Hispanic Chamber of Commerce said in an interview with California Globe.
