California lags behind in regulating short-term lenders. This bill could finally curb them

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After years of unsuccessful attempts to curb California’s “low dollar” lenders, supporters of a bill to cap interest rates are hoping that a larger coalition of lenders and a governor who s is pronounced against predatory loans will make a difference.

House Bill 539, which would set an annual interest rate cap of 36% plus a federal funds rate of 2.5% on loans of $ 2,500 to $ 10,000, is sponsored by the Los Angeles County Board of Supervisors and supported by Atty. General Xavier Becerra, churches, unions, community organizations and even some lenders.

But with the industry spending heavily to pressure officials ahead of a key vote on Wednesday, supporters fear California will once again succeed in preventing lenders from charging triple-digit interest rates on loans that no longer hold. a third of borrowers do not repay on time. .

“They are under pressure,” said MP Monique Limón (D-Santa Barbara), who introduced the bill. “They are the subject of lobbying. Our members will have to decide whether they are going to protect the profits of certain companies or whether they are going to side with consumers and responsible lenders.

Nineteen so-called low dollar lenders, which offer auto title loans, personal loans, and other installment loans, have spent nearly $ 3.5 million lobbying the State Capitol since 2017. More than a dozen companies have donated an additional $ 3.2 million to lawmakers, political parties and campaign committees over the past decade.

Ahead of a difficult hearing this week in the Senate Banking and Financial Institutions Committee, lenders opposed to the legislation gave at least $ 39,000 directly to state senators and $ 10,000 to the California Democratic Party this month.

California approved lenders who offer consumer loans under $ 2,500 are required to cap interest rates between 12% and 30% per annum. State law imposed a cap on loans over $ 2,500 until 1985, when the legislature voted to lower the threshold.

As part of a multi-year effort to strengthen enforcement of the limits, the state’s Business Monitoring Department reached a settlement of $ 800,000 earlier this year with California Check Cashing Stores after alleging that the company pressured borrowers to take out loans over $ 2,500 to avoid the cap. and earn more money on interest.

California loan laws are considered lax compared to those in other states.

More than three dozen states and the District of Columbia have set interest limits on five-year $ 10,000 loans at a median rate of 25%, according to a 2018 report from the National Consumer Law Center.

At the same time, the prevalence of high cost loans has increased exponentially in California since the recession, from around 2,000 with annual interest rates above 100% in 2008 to over 350,000 with such loans. conditions in 2017, according to the California Department of Business. Monitoring.

A late-night CashCall TV commercial loan with easy qualifiers appeared to be the solution to Shellise Jordan’s financial woes after her husband left, leaving her with two dependent children and a pile of bills.

She took out a loan of $ 2,525 in the fall of 2013 with four years to pay it off. As an inexperienced borrower, Jordan said she never thought to ask about the annual percentage rate, which turned out to be 138%.

“I said, ‘I can get off some of these bills,’ then it turned into $ 14,000,” said Jordan, 55, who lives in the town of Lawndale in South Bay. “I think I told them too much. Once they know you are desperate, this is how they attack you.

Opponents and supporters of AB 539 disagree on the implications of the proposal for people in situations similar to Jordan’s.

Lawyers say the legislation would prevent unscrupulous lenders from charging vulnerable Californians exorbitant rates, as high as 200%, on loans.

But lenders who oppose the proposal argue that fewer businesses could afford to issue loans under the new cap. They say borrowers who are considered sub-prime with no credit or bad credit and traditional banks and credit unions refuse to serve will lose access to loans altogether.

“It takes away their credit options while not eliminating their need,” said Roger Salazar, spokesperson for Don’t Lock Me Out, a coalition of lenders opposed to the bill.

The legislature has pushed back several efforts to put limits on lenders in recent years, including proposals to cap interest rates and prevent people from taking out multiple payday loans at once.

A bill similar to Limón’s AB 539 failed in the Senate banking panel a year ago, missing a vote. The lawmaker’s new iteration of the proposal, this time sponsored by LA County, returns to committee on Wednesday with a larger coalition of supporters, including some lenders, in a new political era in Sacramento.

Gov. Gavin Newsom has not approved Limón’s legislation and his office is not stepping in behind the scenes to facilitate passage of the proposal. But the governor’s public threats to put the brakes on the industry – and the beatings to his former gubernatorial opponent, fellow Democrat Antonio Villaraigoisa, for taking money from payday lenders ahead of the 2018 primary – have given the Capitol a different tone this year.

“Make no mistake, powerful forces are being deployed against us,” Newsom said during his inaugural address in January. “Not just the politicians in Washington, but the drug companies scamming Californians with outrageous prices. A gun lobby ready to sacrifice the lives of our children to line their pockets. Polluters who threaten our coastline and payday lenders who target our most vulnerable. In other places, interests like these still have a tight grip on power. But here in California, we have the power to stand up to them – and we will. “

Advocates say the new momentum has helped push some lenders to come to the table and negotiate the terms of the proposal this year. Rumors of a potential electoral measure – a strategy that has been successful in other states – and a recent California Supreme Court opinion that courts can declare high rates “inadmissible” and unenforceable have also facilitated discussions.

Speaker Anthony Rendon (D-Lakewood) has been a strong supporter of the bill. He was standing next to Limón at a press conference this month where a person in shark costume was holding a briefcase full of money and dancing to the children’s song “Baby Shark”.

Weeks earlier, Rendon had told members of the Assembly that AB 539 was “as important as any piece of legislation we will vote on this year.”

“Opponents of this bill will tell you that it will restrict access to credit for those who need it most,” Rendon said before the assembly sent the bill to the Senate with a vote. 64 against 4 in May. “These are just talking points from an industry that has repeatedly lied to members of this organization. These are the talking points of an unscrupulous industry. Don’t be fooled by them.

Limón admits that his legislation is not perfect.

As part of a compromise between consumer advocates and lenders supporting the bill, such as OneMain Financial, Oportun and Lendmark Financial Services, the proposal applies only to loans and does not deal with ancillary products, such than credit insurance applied by lenders.

The Don’t Lock Me Out coalition says the proposal will allow major lenders supporting the bill to increase their market share.

“If the bill were passed as it is now written, many of these small lenders would be shut out of the market, while One Main, Oportun and Lendmark would stay here and have no one else to compete with,” he said. said Salazar. .

But a Senate Banking Committee analysis cites state data that suggests many lenders may continue to operate in California under a cap. Over 150 lenders offered loans between $ 2,500 and $ 9,999 with interest rates below 40% in 2017.

The fate of the proposal in committee remains uncertain. But the decision by Senate Speaker Pro Tem Toni Atkins to add Senator Brian Dahle, a Bieber Republican who won a special election earlier this month, to the committee in place of another GOP lawmaker gives the bill another yes vote. Dahle backed the bill earlier this year in the assembly, where he was previously Republican leader.

“I think if you borrow $ 2,500 and end up paying back $ 12,000 over time, that’s just not right,” Dahle said. “It tells me that there is something wrong. We have to help these people in the event of a tragedy and they need the money in the short term to fix a problem. There should be an opportunity for it, but it shouldn’t be where it puts them in more debt. “

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