California Sends Consumer Loan Rate Cap Bill to Governor

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California has passed a consumer lending bill, AB 539, that provides rate caps and other restrictions on a wider range of loans than currently covered by the California Financing Law (CFL).

Among other things, the bill amends the CFL to prohibit licensees from receiving charges on consumer loans from $2,500 to $10,000 at a rate exceeding 36% per year plus the Federal Funds Rate (currently roughly 2%). The bill also requires the CFL licensees to report each borrower's payment performance to at least one consumer reporting agency and offer the borrower a credit education program or seminar. And the bill applies CFL requirements to open-end loans of up to $10,000.

AB 539 passed both the California Assembly and Senate on September 13 and was presented to the governor on September 25. Governor Gavin Newsom has until October 13 to sign the bill into law. Once signed into law, the bill becomes effective on January 1, 2020. The bill analysis notes that, if the bill is enacted, California will join 38 states and the District of Columbia that have interest rate caps for these types of loans, according to the National Consumer Law Center.

Currently, the CFL caps rates on loans under $2,500, with additional requirements and restrictions generally falling away for loans that exceed $5,000. Under the AB 539 amendments, lenders will need to apply CFL restrictions to a larger segment of the products they offer.

October 11 Update:

Governor Newsom signed AB 539 into law on October 10. Since the bill does not specify an effective date, the amendments to the CFL will go into effect on January 1, 2020.

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