California Democrats have filed a bill that would cap annual interest rates at 19 percent and wipe out about $2.7 billion in loans to California residents.
Assemblyman Ash Kalra (D-San Jose) and Sen. Holly Mitchell (D-Los Angeles) introduced AB-2500, which would set a 19 percent interest rates cap for consumer loans with balances of between $2,500 and $10,000. The legislation in the last three weeks has picked up eight additional Democrat co-sponsors.
The California Legislature ended interest rate limitations for small loans above $2,500 in the 1980s. As a result, there was an estimated $1.5 billion in un-bankable intermediate-term loans issued to state residents, with over half the lending is at annual interest rates over 100 percent or more.
The new bill does not target very short-term pay-day loans, which can charge interest rates of up to 400 percent annualized to borrow up to $500 to bridge the gap between paychecks. But it would raise the cap from $2,500 to $10,000, for loans subject to a 19 percent interest rate limit.
The forecast impact on the $2.7 billion California industry would be to eliminate 98 percent of the $2,500 to $5,000 loans, and 95 percent of the $5,000 to $10,000 loans.
Kalra and other Democrats tried last year to ban the high interest rate practices, but the effort ran into industry lobbying and consumers desperate for emergency cash.
But as Chair of the Assembly Aging and Long Term Care Committee, Assemblyman Kalra has been able to host a number of large meetings for his “Safe Consumer Lending Act” over the last four months, including his latest in Sacramento on February 15.
Kalra highlights residents like JoAnn Hesson, who suffered from diabetes for many years. She is living on Social Security, and required twin surgeries to amputate a leg and provide a kidney transplant. Although she only borrowed $5,000, Hesson was eventually required to repay $42,000.
According to Assemblyman Kalra: “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,”
Principal co-author Sen. Holly J. Mitchell(D-Los Angeles) added: “Compound irresponsible behavior by unscrupulous lending institutions with a recent federal proposal to end key consumer-protection measures for payday loans, and it is clear California must do more to protect families.”
AB 2500 is also co-sponsored by the African Methodist Episcopal Church (AME) – 5th Episcopal District; Asian Law Alliance; Coalition for Humane Immigrant Rights of Los Angeles; Unidos US (formerly the National Council of La Raza); and the Western Center on Law and Poverty.