Assemblymember Kalra's AB 2500 provides pragmatic solution to curb abusive high-cost loans

SACRAMENTO, CALIF. - Today, the Center for Responsible Lending (CRL) and city leaders from across the state applauded California Assemblymember Ash Kalra’s (D-San Jose) introduction of AB 2500, the Safe Consumer Lending Act, a bill to protect California families from abusive high-cost installment loans. The legislation would extend California’s current interest rate cap for consumer loans between $2,500 to $10,000. Kalra announced the introduction of this bill at a press conference in Sacramento where consumer advocates, including the Center for Responsible Lending (CRL), welcomed the news and shared their stories. The bill is coauthored by Sen. Holly J. Mitchell (D-Los Angeles)

Under the proposed law, a $10,000 loan with a 12 month repayment plan would carry a maximum interest rate of 20%. Eliminating triple-digit annual percentage rate (APR) for loans between $2,500 to $10,000 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 APR limit for installment loans of $2,500 to $10,000, which gives predatory lenders the opportunity to charge borrowers interest rates of 100% APR or more.

“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.”

“This bill is a pragmatic solution to help stop financial abuse, especially in our low-income communities. Just one predatory loan could be disastrous for a family struggling to make ends meet. Assemblyman Kalra has consistently fought in defense of working families who are trying to get out this cruel debt trap, and I applaud his effort to hold the industry accountable and transparent to the public,” said Mayor of Berkeley Jesse Arreguin.

“Predatory loans drown people in debt every day. They lead to car repossession, negative credit scores, bank overdraft penalties, and even bankruptcy. The predatory lending industry has made millions of dollars a year profiting off the backs of poor people and communities of color, and it’s going to continue that way unless we do something about it. Assembly Bill 2500 is a way to help our families from being caught in an abusive debt trap, and I will be reaching out to our State legislators to seek their support of this very important bill,” said Councilmember Margarita Rios, City of Norwalk.

"The predatory lending debt trap strips families of wealth and sinks people into poverty. Too often we see these store-front loan sharks deceitfully market their toxic products as quick fixes or easy solutions--but in reality, they lead to a cascade of dire financial consequences. I commend Assemblymember Kalra for proposing a sensible solution that would stop this kind of financial abuse from hurting communities,” said Councilmember Nancy Smith, City of Sunnyvale.

AB 2500 would close a gap in California’s Consumer Finance Lender Law (CFLL) 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.

Assemb. 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.

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, and nearly one quarter of loans between $5,000 and $10,000 had APRs of 100% or higher. In 2014, according to the National Consumer Law Center, 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 announced 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 reflects a 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.

For more information, or to arrange an interview with a CRL spokesperson on this issue, please contact Ricardo Quinto at