Fair Access to Credit Act caps interest rates on loans over $2,500
SACRAMENTO, CA – California Governor Gavin Newsom signed 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 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.
“For too long, unscrupulous lenders have exploited loopholes in the law and used their political muscle to block reform in the state legislature,” said Suzanne Martindale, senior policy counsel and western states legislative manager for Consumer Reports. “California’s new law will help put an end to predatory interest rates that saddle vulnerable Californians with crushing, unaffordable debt. These reforms are a crucial first step toward reining in abusive lenders and promoting fairer financial services for all 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 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.