Predatory loans hurt families

I recently read a story in the Sacramento Bee about a single grandmother from Richmond who found herself in need of $1,000 after her car’s transmission broke.

Faced with an unexpected but necessary expense, she did what many have done during tough financial times: She took out a loan. With few options available to her, she accepted a loan on the subprime market from a high-interest lender.

She was quoted as saying that she cried when she realized how much she would be expected to pay on her triple-digit APR loan, and she eventually defaulted.

Unfortunately, her story is all too familiar to families throughout our state. Such high-interest rates can quickly turn a family’s tight financial situation into a full-blown catastrophe. Each year, more than 100,000 Californians – or one in three people – who take out these loans default and end up with more financial problems and less hope that they will ever live debt free.

Despite its reputation as a pro-consumer state, California is one of only 12 states where it is legal to charge triple-digit interest rates on consumer loans, with rates often exceeding 200 percent.

To pay back a $2,500 loan at this rate, a borrower would need to pay nearly $10,000 over two years. And some aren’t even that lucky. Last year, the L.A. Times published a story about a Marine Corps veteran who turned to subprime loans after medical bills for a leg amputation and kidney transplant wiped out most of her retirement; the result was she needed to pay nearly $37,000 in interest off a $5,000 loan. This is simply unconscionable.

The state Legislature has attempted many times to place consumer protections on these small dollar loans, but all efforts have failed under strong opposition from the industry. Over the last two years that I have served on the Assembly Banking and Finance Committee, my colleague and I have worked with a group of responsible lenders, consumer advocates, faith leaders and community groups to negotiate a package of strong consumer protections that would maintain a healthy lending market for non-prime borrowers in our state. The result of those negotiations is Assembly Bill 539, the Fair Access to Credit Act, which will cap interest rates on loans of $2,500-$10,000 at roughly 36 percent.

Californians deserve real access to capital, not exploitative loans that trap them in perpetual payments and compounding debt. We must do more to protect financially vulnerable, hard-working families from predatory lenders who profit off of their devastation, and that starts with ending the worst kinds of abusive loans in our state and passing AB 539.

I’m proud to be leading this fight and hope you are able to join me. By the time this column is published, AB 539 will have faced a live-or-die vote in the Senate Banking and Financial Institutions Committee.

To learn more about the status of this bill or others in my legislative package, follow me on Facebook and Twitter or call my Concord office at 925-521-1511.