On June 26, the California Senate Banking Committee scheduled a hearing on Assembly Bill 539 that would cap the interest rate at 36 percent plus the federal funds rate on loans of more than $2,500 but less than $10,000.
California consumers have made it clear that they want and need these loans to be available to them. According to the state Department of Business Oversight, lenders made about 63,000 loans in 2009 that were in the $2,500-$4,900 range. Without these types of consumer loans, those who have poor credit or no credit at all will have limited choices for borrowing since commercial banks usually won’t lend to them.
In a nationwide Harris poll, 95 percent of those surveyed said it shouldn’t be up to the government to decide whether or not they can borrow money. Roger Salazar, the spokesman for Californians for Credit Access, says the legislation would “create a monopoly for three legislatively favored companies.”
Lendmark, One Main Financial, and Oportun are the companies that will benefit if the bill passes and have been aggressively lobbying for AB 539, calling it “consumer protection.” According to Capitol Weekly, Lendmark calls AB539 “the right approach for consumers to have a loan that is affordable and accessible while promoting a sustainable, healthy credit market for lenders.”
However, these companies are trying to gain an unfair advantage in the marketplace. Some aggressively sell borrowers add-on items, like useless credit insurance, which increases the overall costs of the loan, putting financial strains on the borrowers. As written, AB 539 will give these companies a monopoly on the 36 percent cap and continue to profit from their sales practices.
The bill easily passed the State Assembly by a vote of 60-4, and has since passed two Senate committees. If AB 539 passes and is signed into law by Gov. Newsom, borrowers will be forced to seek loans from those lenders and pay their unfair add-on costs or resort to less safe alternatives for consumer loans.