SACRAMENTO, Calif. —The California Senate has advanced legislation that would cap interest rates for consumer loans, a move supporters say is aimed at stopping predatory lenders.
As currently written, the bill would cap consumer loan interest rates at 36 percentage points above the main interest rate set by the Federal Reserve, which is currently around 2%. Consumer advocacy groups have testified in support of the bill that some loan companies charge interest rates as high as 225%.
The legislation would also apply to loans between $2,500 and $9,999 and require lenders to offer borrowers a credit education summary.
The bill is expected to get a final vote in the state Assembly later before going to Democratic Gov. Gavin Newsom.
Not everyone supports the bill. Among the critics have been black and Hispanic chambers of commerce, which have argued such rate cap could put some lenders out of business and cut off loan options for vulnerable Californians. Other have argued the bill harms people's ability to build credit.
‘Just Not the Case’
"I would suggest that we not feign naivete about credit," Democratic Sen. Holly Mitchell told local media in responding the critics. "To assert or assume that you can earn credit by being taken advantage of someone who is going to charge you 200% on a $2,500 loan is just not the case."
Not surprisingly, among the opponents of the legislation is the Online Lenders Alliance, which spent $66,000 lobbying in the first half of 2019. Lenders including Advance America, Check Into Cash and Axcess Financial spent more than $100,000 combined on lobbying in the same time frame, according to KCRA.