SACRAMENTO, Calif. (AP) — California lawmakers approved legislation Friday to cap interest rates for consumer loans, a measure that supporters say is designed to blunt predatory lending practices.
The bill would cap consumer loan interest rates at 36 percentage points above the main interest rate set by the Federal Reserve, which is currently around 2%. Consumer advocacy groups say some loan companies charge interest rates as high as 225%.
It would apply to loans between $2,500 and $9,999, and it would also require lenders to offer borrowers a credit education summary.
Both the Assembly and Senate passed the bill on Friday, sending it to Democratic Gov. Gavin Newsom for his consideration.
Democratic Assemblyman Tim Grayson of Concord said the bill is needed “so that those who face financial crisis do not become victims again.”
Critics of the bill, including black and Hispanic chambers of commerce, argued a rate cap could put some lenders out of business and cut off loan options for vulnerable Californians. Other critics suggested it could harm peoples ability to build credit.
“I would suggest that we not feign naivete about credit,” Democratic Sen. Holly Mitchell said in response to critics. “To assert or assume that you can earn credit by being taken advantage of someone who is going to charge you 200% on a $2,500 loan is just not the case.”
It passed the Senate by a vote of 30-5 and the Assembly on a 59-7 vote.
