Fair Access to Credit Act caps interest rates on loans over $2,500
SACRAMENTO, CA – The California Senate approved legislation today introduced by Assemblymember Monique Limón that will help protect consumers from high interest loans over $2,500. The Fair Access to Credit Act (AB 539) will help crack down on some of the worst predatory lending in California, according to Consumer Reports, which has long sought to close loopholes in the state’s consumer lending laws that have allowed interest rates to go unchecked.
“Predatory lenders have been allowed to take advantage of vulnerable Californians for decades, while blocking any attempts at reform in the state legislature,” said Suzanne Martindale, senior policy counsel and western states legislative manager for Consumer Reports. “Instead of offering a lifeline, these high-cost loans end up drowning many borrowers in more debt. We applaud Assemblymember Limón for building an unprecedented coalition of community groups and responsible lenders to champion these reforms, which are a crucial first step toward reining in abusive lenders and promoting fairer financial services for Californians.”
While interest rates on installment loans below $2,500 are currently limited in California, no rate cap covers loans above $2,500. Some predatory lenders operating in the state charge borrowers 100-300 percent interest on these loans and an estimated one third of all borrowers wind up worse off than when they started.
AB 539 caps interest rates at 36 percent plus the fed fund rate (currently 2.5 percent) for consumer installment and auto-title loans of $2,500 to $10,000. The bill also prohibits lenders from charging prepayment penalties and imposes a minimum loan term of 12 months and a maximum loan of five years.
Michael McCauley, mmccauley@consumer.org, 415-431-6747