Lawmakers must cap interest on predatory loans

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How much greed is enough? That’s the question Sacramento lawmakers need to ask the predatory lending industry — and themselves — when it comes to Assembly Bill 539.

AB 539 would prevent predatory lenders, like some payday loan companies, from charging outrageous interest rates to people who borrow between $2,500 and $10,000. Currently, someone who takes out a “high-cost installment loan” over $2,500 can face triple-digit interest rates of 200% or more.

State law caps interest on installment loans under $2,500 at 36%. Unfortunately, some lenders have a strategy to get around the cap. By creating new financial products that require people to borrow a minimum of $2,500 to qualify, they can charge exorbitant interest rates on larger loans.

“To pay off a $2,500 loan with an interest rate of 200%, a borrower would repay nearly $10,000 over two years,” Santa Barbara Assemblyman Monique Limón and Tim Grayson wrote. Concord Assemblyman, co-authors of AB 539. The Sacramento Bee.

Limón and Grayson estimate that more than 100,000 Californians a year are sucked into such loans. When they are unable to meet the high interest payments, their credit is destroyed. AB 539 would protect Californians by applying a 38% interest cap on loans between $2,500 and $10,000. If the bill passes, California will join 38 other states that already ban outrageously excessive interest rates on loans like these.

Most people would never voluntarily take out a loan with an interest rate of 38%, let alone a loan over 100%. When shopping for a loan, you are looking for the lowest rate. But people with options are not the target market of the predatory lending industry. People in financial difficulty with no credit, low credit, or bad credit tend to be its chosen victims. The poorest and most powerless people in society are exploited to the maximum and pushed further into financial distress.

Lauren Muntasir, a grandmother from Richmond, needed a $1,000 loan to repair her car’s transmission. Muntasir, who was profiled in a story on Predatory Lenders by Ben Christopher of CALmatters, was attracted to a high interest lender called LoanMe.

“State Data shows that 99.7% of LoanMe loans between $2,500 and $9,999 carried three-digit annual percentage rates in 2017,” according to CALmatters.

Muntasir “cried when she realized the full amount she would have to pay (she eventually defaulted). Even for those who understand the terms, calculating compound interest can be misleading,” Christopher wrote.

The Obama administration had moved to crack down on predatory lending nationwide, but the industry is experiencing a resurgence under the Trump administration — and for good reason. A recent ProPublica investigation revealed how payday lenders, seeking to curry favor with Trump, “poured a total of $1 million into the Trump Organization’s coffers at the two annual conferences.”

Meanwhile, the Trump administration has moved to roll back the Obama administration’s new rules for loan companies — rules designed to protect consumers from predatory practices.

The cash injections are a way to “remind the president and those close to him that they are among those who are generous to him with the profits they make from a company that is in grave regulatory danger unless the Trump administration does not act”. for Financial Reform Executive Director Lisa Donner told ProPublica.

Trump isn’t the only one benefiting from the selective generosity of the payday loan industry. After the California State Assembly resoundingly passed AB 539 by a vote of 60 to 4, the industry rushed to cut campaign checks to state senators on the California Senate Banking and Financial Institutions. Committee. The committee now controls the fate of AB 539.

Will campaign contributions harvested from the pockets of California’s struggling poor succeed in killing a bill designed to protect people from predatory interest rates? It’s yours.

Make your voice heard by contacting these Senate committee members. Tell them to do what’s good for the people, not the predatory loan companies that impose checks at suspicious times on their campaigns:

State. Senator Steven Bradford, President: 916-651-4035

State Senator Ling Ling Chang, Vice President: 916-651-4029

State Senator Anna Caballero: 916-651-4012

State Senator Ben Hueso: 916-651-4040

State. Senator Mike Morrell: 916-651-4023

State Senator Anthony Portantino: 916-651-4025

This story was originally published June 11, 2019 7:01 a.m.

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