Bill Provides Much Needed Consumer Protections For High-Cost Installment Loans
April 3, 2018
SACRAMENTO, CA – Consumers Union, the advocacy division of Consumer Reports, praised the California Assembly Banking Committee today for approving legislation that will help protect vulnerable working families who take out installment loans. The Committee approved AB 2500, the Safe Consumer Lending Act, which applies a 36 percent rate cap on loans between $2,500 and $5,000.
“We are pleased that the California Assembly Banking Committee has approved this commonsense measure to curtail some of the riskiest installment lending in the state,” said Suzanne Martindale, senior attorney for Consumers Union. “Families living paycheck to paycheck need real solutions to help maintain stable finances and build wealth. It is not the job of the Legislature to sanction a broken status quo. This bill represents a more forward-looking approach: it demands that industry players meet higher standards, and supports those who already do. We urge the full Assembly to approve AB 2500, without delay.”
State law currently permits high-cost lenders to issue consumer loans of $2,500 or more that come with triple-digit interest rates. Although loans below that amount do come with rate caps, some lenders have evaded the rate caps by pushing borrowers into larger loans than they requested so they can charge higher interest rates. California Department of Business Oversight data has shown that lenders making triple-digit loans at these amounts put their borrowers at serious risk of default; some have default rates as high as 40%. Given how much they must pay in interest charges alone, borrowers may manage to pay enough to make the lender a comfortable profit before defaulting.
Borrowers who struggle with these loans can face penalty fees, debt collection lawsuits, damaged credit, and even bankruptcy. Since these loans are often secured with a borrower’s vehicle, the consequences of falling behind on payments could mean losing a car, making it harder to keep a job.
Michael McCauley, mmccauley@consumer.org, 415-431-6747, ext. 7606