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Ending the Endless Cycle Of Debt

Sacramento, CA — A new bill wants to take predatory lenders to task by capping the interest rate that can be charged.

Triple-digit, high-cost interest rate loans have caught some people in an endless cycle of debt, which has led to car repossessions, wage garnishments, and bankruptcies. Assembly Bill 2500 the “Safe Consumer Lending Act” aims to combat these types of financial abuses across the state and would level the playing field for lenders that are providing access to safe and affordable loans, according to its author Assemblymember Ash Kalra (D-San Jose). The bill would extend California’s current interest rate cap for consumer loans between $2,500 and $10,000. For example, a $10,000 loan with a 12-month repayment plan would carry a maximum interest rate of 20%. Under the measure, both unsecured and secured consumer loans would be covered, including auto title loans.

“California has no shortage of predatory lenders. We see them pop-up around the state, especially in low-income neighborhoods. These types of loans, those with exorbitantly high interest rates, hurt hard working families the most,” said Assemblymember Kalra. He points to the Trump Administrations recent roll backs of federal consumer protection regulations, including delaying the implementation of the Consumer Financial Protection Bureau’s proposed rule on payday and car-title lending, for why the state needs to take action to protect the public.

According to a 2016 annual report by the California Department of Business Oversight, 58% of installment loans in this range had 100% APRs or higher. The statistics also showed a default rate of 20% to 40%. That makes it a win-win for predatory lenders since they 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, according to Kalra. The bill has support from some borrowers and consumer advocate groups such as the Center for Responsible Lending (CRL) .

“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.

Kalra remarks that currently in the state there is no APR limit for installment loans up to $10,000, which gives lenders the opportunity to charge borrowers triple digit interest rates.