Soapbox

California must take a small step against predatory lending

The Trump administration's new Consumer Financial Protection Bureau has sided with payday lenders over consumers. A bill before the California Legislature would limit interest rates on payday loans.
The Trump administration's new Consumer Financial Protection Bureau has sided with payday lenders over consumers. A bill before the California Legislature would limit interest rates on payday loans. Dreamstime

Many Californians have seen those neon storefront signs advertising fast cash advances and same-day loans with no credit check. If it sounds too good to be true, it is.

The reality is these loan sharks trap distressed borrowers in triple-digit interest rate loans. They ruin their credit, get their wages garnished and cars repossessed and can even be forced into bankruptcy.

Graciela Aponte-Diaz.jpg
Graciela Aponte-Diaz

Every year, lobbyists in Sacramento have stymied efforts for much needed consumer protection laws against predatory lending. This year, the payday lending industry has hired various lobbying firms and paid for radio ads and social media campaigns.

This session, California families have allies in Assemblyman Ash Kalra, D-San Jose, and Sen. Holly Mitchell, D-Los Angeles, who are pushing Assembly Bill 2500 to protect them from abusive installment loans. The bill is expected to go to the Assembly floor this week.

Opinion

Currently, California has no annual percentage rate limit for installment loans between $2,500 and $5,000. AB 2500, the Safe Consumer Lending Act, would cap interest rates at 36 percent for loans of this size.

This legislation is a great first step to curb a terrible lending practice, and it’s pragmatic enough for legislators of both parties to support. The biggest lender for these loans, Oportun, also backs the bill.

We at the Center for Responsible Lending have heard from borrowers victimized by long-term triple digit APR loans, especially those whose first language isn’t English. This debt trap typically leaves customers in worse financial position, and it’s widely condemned by community and civil rights organizations, faith and military leaders, and many state and federal lawmakers.

The predatory lending industry likes to argue that capping interest rates leads to less access to credit for consumers. That simply isn’t true, as shown by the experiences of states with caps on toxic loans products, including Arizona, Arkansas, New York, North Carolina and South Dakota. Residents in these states are able to borrow money.

Providing responsible credit access while maintaining financial protections is good business, good for consumers and good for the state’s economic well-being. As the Trump administration attempts to roll back important federal consumer regulations, including delaying rules on payday and car-title lending, the need for California to curb predatory lending is more important than ever.

If we truly want financial fairness in our communities and to stop financial abuse, passing AB 2500 is paramount.

Graciela Aponte-Diaz is director of California policy at the nonpartisan Center for Responsible Lending. She can be contacted at Graciela.Aponte@ResponsibleLending.org.

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