Assemblymember Kalra's AB 1109 would cap high-cost loans at 24%

Today, the Center for Responsible Lending (CRL) applauded California Assemblymember Ash Kalra’s (D-San Jose) introduction of AB 1109, the Safe Consumer Lending Act, a bill to cap an annual percentage rate (APR) at 24% plus origination fee for consumer loans of $2,500 to $10,000. Currently, California has no APR limit for installment loans of $2,500 to $10,000, which gives predatory lenders the opportunity to charge borrowers interest rates of 100% APR or more. The legislation has support from civil rights leader Dolores Huerta and is sponsored by the Asian Law Alliance, Coalition for Humane Immigrant Rights of Los Angeles (CHIRLA), Housing Commission of the National Baptist Convention USA, and National Council of La Raza (NCLR).

"Assemblymember Kalra’s bill is a commonsense approach to end this abusive practice," said CRL California Policy Director Graciela Aponte-Diaz. “Consumer loans with triple digit interest rates are meant to keep borrowers in a cycle of debt that they can never get out of. This type of bad practice has severe impacts on low-wealth families across California, especially in our Latino, African American, and immigrant communities. We’re proud to support AB 1109 and look forward to working with families and organizations around the state to put a halt on predatory loans."

AB 1109 comes off the heels of recent national calls by special interests to weaken the Consumer Financial Protection Bureau (CFPB)—an independent federal agency that fights to protect working families from bad practices on Wall Street. The CFPB is currently working to prevent payday loan debt traps and forced arbitration clauses that deny consumers their day in court.

According to a 2015 California Department of Business Oversight (DBO) report, 54% of high-cost installment loans of $2,500 to $10,000 had 100% APRs or higher. In 2014, according to the National Consumer Law Center, these loans had a default rate of 20% to 40%, which makes it financially beneficial for predatory lenders since they’re are able to recoup the loan amount, profit within 6 to 12 months of repayment, and obtain a tax write-off if the borrower defaults.

CRL has consistently fought against predatory lending practices across California, including abusive payday lenders. In December, CRL announced that a DBO research report detailed how payday loan stores in the state are disproportionately located in heavily African American and Latino neighborhoods. Combined, African Americans and Latinos make up almost 44% of the state's total population--and in those communities, on average, nearly 60% had six or more payday loan stores compared to white communities at 28%. DBO's research reflects a CRL study that shows even after controlling for income and a variety of other factors, payday lenders are 2.4 times more concentrated in African American and Latino communities.

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For more information, or to arrange an interview with a CRL spokesperson on this issue, please contact Ricardo Quinto at ricardo.quinto@responsiblelending.org.