In Final Bill Signing as Governor, Jerry Brown Raises cap on California Installment Loans
Inside Subprime: Oct 1, 2018
By Nikolas Wright
Cash-strapped Californians can now get small loans up to $7,500 under a bill that Gov. Jerry Brown signed on Sept. 30th.
Assembly Bill 237 raises the dollar amount from $2,499 to $7,500 for under the Pilot Program for Increased Access to Responsible Small Dollar Loans (RSDL). It was the last bill Brown signed during the state’s 2018 legislative session — and his last bill as the Golden State’s governor.
Supporters of the bill say it boosts consumer credit because borrowers can succeed at repaying larger loans.
Payday loans are legal in California. But under state law, people can only take out a maximum of $300. The RSDL program, which the state introduced in 2010, intended to make it easier for consumers to get small dollar loans from $300 to $2,500. The program was billed as an alternative to risky payday loans, which can result in people falling into the debt trap.
The main difference between an installment loan and a predatory loan is that installment loans are actually meant to be repaid. They’re generally safer, more affordable, and can help build credit rather than damage it.
Under the RSDL program, lenders can charge higher interest rates than loans for the same amount made outside the program. However, lenders must give consumers protections and benefits in exchange. Here are the major ones, as outlined by the Greenlining Institute:
- Required verification of income and debt to be used in underwriting
- Minimum terms for loans that are measured in months
- Mandatory reporting of loans to a nationwide credit bureau so consumers can establish credit history
- Offer of credit education before loan disbursement
- Conditions on refinancing the loan balance
- A ban on requiring borrowers to waive their rights to sue as a condition of getting a loan
Although Californians can get payday loans outside of RDSL up to $300, the average interest rates are north of 400%. The average California payday loan of $100 borrowed for 2 weeks carries an APR of 459%.
Before the California RDSL pilot began, there weren’t many lenders offering loans between $300 and $2,500, according to the Greenlining Institute. Payday lenders offer loans below $300, while installment loan providers typically offer higher dollar value loans.
According to a state report, 61 percent of borrowers saw their credit scores rise between 2011 and 2015. The average borrower saw credit scores increase 198 points, while people who borrowed multiple times saw their scores go up 355 points. All positive results for the RDSL program.
California borrowers can access RSDL installment loans through 2023.