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Bill to Stop Predatory Lending Clears Key Committee Hurdle

Tuesday, April 3, 2018
Graciela Aponte-Diaz

AB 2500 Received Seven Votes Out of Committee With No Opposition

SACRAMENTO, CALIF. - The California Assembly Committee on Banking and Finance has voted to pass AB 2500, the Safe Consumer Lending Act. The bill, brought forward by Assemblymember Ash Kalra’s (D-San Jose), and principal co-authors Senator Holly J. Mitchell (D-Los Angeles) and Senator Steven Bradford (D-Los Angeles), would protect California families from abusive high-cost installment loans, including those made by car title lenders. The legislation would drastically reduce the costs of consumer loans between $2,500 to $5,000. The bill received no opposition.

The Center for Responsible Lending (CRL) is joined by the African Methodist Episcopal Church, 5th Episcopal District, Asian Law Alliance, Coalition for Humane and Immigrant Rights (CHIRLA), UnidosUS, and Western Center on Poverty in sponsoring the measure. AB 2500 is supported by nearly 100 California consumer, faith, civil rights organizations, and cities.

“This is a huge step forward in the fight against predatory lending and leveling the playing field for lenders and nonprofits that provide safe access to credit,” said CRL California Policy Director Graciela Aponte-Diaz. “We are thankful to the members for supporting AB 2500 and appreciate the thoughtful, substantive discussion that took place during the committee hearing. It is clear everyone wants California to be safer for consumers.”

Eliminating triple-digit annual percentage rate (APR) for loans between $2,500 to $5,000 is fair for distressed families who need a financial solution and it would level the playing field for lenders that are providing access to safe and affordable loans. Currently, California has no cost limit for installment loans above $2,500, which gives predatory lenders the opportunity to charge borrowers annual interest rates of 100% APR or more. AB 2500 limits the cost of interest and credit insurance to no more than 36% annually, while allowing an origination fee, for loans of $2,500 to $5,000. The bill includes additional protections such as a minimum 12-month loan term and protections against repeat refinancing.

The timely discussion of AB 2500 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.

According to a 2016 annual report by the California Department of Business Oversight (DBO), 58% of installment loans of $2,500 to $5,000 had 100% APRs or higher. In a 2015 report by the National Consumer Law Center, they found that these high-cost 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.

CRL has consistently fought against predatory lending practices across California, including abusive payday lenders. Previously, CRL highlighted that a DBO research report detailed how payday loan stores in the state are disproportionately located in heavily African American and Latino neighborhoods. Combined, African Americans and Latinos make up almost 44% of the state's total population--and in those communities, on average, nearly 60% had six or more payday loan stores compared to white communities at 28%. DBO's research reaches similar findings as an earlier CRL study that shows even after controlling for income and a variety of other factors, payday lenders are 2.4 times more concentrated in African American and Latino communities. (PDF)

For more information, or to arrange an interview with a CRL spokesperson on this issue, please contact Ricardo Quinto at ricardo.quinto@responsiblelending.org.