Stop the Debt Trap
Over the past decade, payday lenders have pushed financially vulnerable consumers into a larger unregulated loan product that comes with interest rates of 100% to 225%. Far too often, these unaffordable interest rates cause borrowers to default on their loans, which destroys their credit and can lead to bank account closures, wage garnishments, and vehicle repossessions. Loans should be designed to help Californians manage their budgets and improve their financial well-being, but instead some lenders rely on these high-cost loans to extract exorbitant fees until a borrower can no longer stay afloat.
In 2019, Assemblymember Limón introduced Assembly Bill 539, which extends a 36% interest rate cap to loans of up to $10,000. Assemblymember Limón organized a broad coalition of organizations to support AB 539, including AARP, Equal Rights Advocates, the League of United Latin American Citizens, United Ways of California, Western Center on Law and Poverty, and the California Association of Veteran Services Agencies. Despite strong opposition from payday lenders, Assemblymember Limón and the coalition succeeded in passing AB 539, and the bill was signed into law by the Governor on October 10, 2019.
AB 539 will help thousands of Californians by lowering their interest rates and preventing them from being stuck in an affordable debt trap. But there is more work to be done. California law continues to allow payday lenders to make small loans of $300 or less with interest rates that top 400%. While a $45 fee to borrow $255 may not sound egregious, the $45 fee can quickly add up when borrowers cannot repay the first loan and find themselves in a hole where they take out a new loan every two weeks. Nearly half a million Californians are taking out more than 10 payday loans over the course of a year, paying an average interest rate of 372 percent and fees that exceed $450 per year with a substantial number of these loans going to the elderly.
Watch these testimonials to learn more about how this predatory practice is affecting individuals, their families, their communities and the state.