By KENDRA SITTON | Downtown News
San Diego Assembly member Lorena Gonzalez is continuing her push in Sacramento to end high-cost loans. The bill barring predatory loans by capping interest rates, AB 539, was passed in the Assembly on May 23 with bipartisan support. Now it is being amended in Senate committees as advocates worry it will never make it to the floor.
“It still has quite a little road go down. We haven’t had the outward support we were hoping for,” Gonzalez said after a panel at the Westin Hotel on the effects of high-cost loans in San Diego on June 7.
While dozens of states, as well as the District of Columbia, cap interest rates for small loans, similar proposals in California have repeatedly died in the Legislature. Gonzalez viewed it as a big win when AB 539, which would actually reinstate old limits on interest rates that have not been used since 1985, passed in the Assembly. Gonzalez urged people at the June event to put pressure on their state Senators so that those protections might finally be put in place after years of advocacy.
There are caps on interest rates for loans below $2,500 and above $10,000 in California. The Consumer Financial Protections Bureau (CFPB) and Calif. Department of Business Oversight (DBO) found many predatory practices from lenders, including requiring borrowers take out loans just above the $2,500 threshold so lenders could legally charge triple-digit interest rates. A $2,500 loan with 200% interest would require a borrower to repay almost $10,000 in two years.
“We know it can set families back and we want people to constantly be moving forward,” Gonzalez said.
Opponents to the bill worry it could keep people from low-income neighborhoods who are turned away from banks or other traditional financial institutions from accessing credit in times of need. It is true that many of the storefronts offering the high-cost loans are concentrated in low-income or minority neighborhoods like National City, where residents could face discrimination when trying to secure a loan from a big bank.
“A lot of them [lawmakers opposed to AB 539] are afraid there will be folks who won’t have access to any type of cash when they’re at their toughest times. What we’ve seen and why we think they’re wrong is because there are lenders in this space and we know we can grow that space [access to credit] at 36%. We will continue to work on that access but allowing people to be taking out loans at 100%, 200%, 600% is something that should be impossible for all of us.”
Geneve Villacres, from OneMain Financial, was at the panel to demonstrate that other credit options are available. She discussed how OneMain Financial issued nearly 10,000 loans in 2017 between $2,500-$5,000, and all of them boasted interest rates below 39%. She said many other similar lenders exist, but predatory lenders are out-advertising them to people who are the most vulnerable.
Of the top 20 lenders of loans between $2,500-$5,000 in 2017, the vast majority offered some or all of their loans with interest rates in the triple digits. Three lenders offered all of their loans with interest rates above 100%, showing they were not taking borrowers’ ability to pay the loan back into account when developing an interest rate.
Alyson Snow, of San Diego Legal Aid, was also a part of the panel that Gonzalez moderated. She pointed out that to help clients who come to her office, she has to prove the predatory lenders somehow broke the rules — for instance, by targeting a veteran’s spouse for a loan because veterans are already protected from high-interest rates or by lying about the terms of the loan. She said triple-digit interest rates should be illegal, but instead, she can only find loopholes in order to help San Diegans who are drowning in debt from payday loans.
While the bill is making its way through the Senate, Gonzalez is urging voters to contact their Senators to put pressure on them so AB 539 does not die like so many similar prior measures introduced in the Legislature.
— Kendra Sitton can be reached at firstname.lastname@example.org.