California bills would limit payday and title lending in the state

Inside Subprime: June 25, 2018

By Lindsay Frankel

Two new bills that would tighten restrictions on title loans and payday loans in California have passed in the State Assembly and will now move to the Senate. The bills, authored by Assemblywoman Monique Limón (D-Santa Barbara), are more modest than previous bills, which never made it through the Assembly.

“There are those bills that aimed to, overnight, completely do a shift to the market and shut down parts of the industry all at once, and then there are bills that aim to look at the problem in increments,” said Limón.

Still, payday lenders say that the bills would make it more difficult for Californians with bad credit to get access to money in the event of an emergency. Lenders also warn that, if these laws take effect, borrowers who would otherwise seek out a payday or title loan may fall into the hands of illegal and unlicensed lenders.

Assembly Bill 3010 is designed to prevent California residents from taking out repeated loans, a measure that would require the Department of Business Oversight to create a database that lenders would be required use to verify whether a borrower has any current outstanding loans. While it is currently illegal for lenders to give out multiple loans to the same customer, borrowers can still visit multiple lenders to take out loans if they require more money than the maximum $255 per lender allowed by current law. Limon suggested that having multiple loans would make it difficult for cash-strapped borrowers to get out of debt.

But the payday lending trade group, California Financial Service Providers Association (CFSP), calls the database “a shocking risk to Californians’ data and privacy,” and claims that it would prevent credit-poor borrowers from accessing money in times of need. In a letter to the Senate banking committee, the trade group wrote: “California cannot ban its way to a healthy financial services marketplace.”

To address these concerns, Limón added an amendment to the bill that would establish a new consumer loan for Californians, one that would fall between short-term payday loans and larger dollar installment loans. The amendment is in line with proposals from Pew Charitable Trusts. But the CFSP said these provisions were not enough.

Limón’s second bill, Assembly Bill 2953, would cap interest rates on auto title loans at 36 percent. These loans use a borrower’s car as collateral and can carry astoundingly high interest rates and fees. In 2017, title lenders repossessed more than 20,000 cars.

“It’s a really big deal to have a car repossessed,” Limón said. “It’s fundamentally about seeing families lose a valuable asset.”

While this bill is more limited in scope, payday lenders and title lenders in California still oppose it. But consumer advocates argue that these pricey loan products cause undue financial harm to consumers. Payday loans in California cost borrowers an average annual interest rate of 411 percent, according to Pew. Limón’s bills are intended to protect California borrowers from getting in over their heads in debt.

To learn more about payday and title lending in California, check out these related pages and articles from OppLoans: