SACRAMENTO — Merely an hour after passing major legislation across the Assembly Floor that protects consumers from auto title lending practices that commonly result in borrowers losing their cars (AB 2953), Assemblymember Monique Limón (D-Santa Barbara) advanced additional consumer protection legislation in the form of AB 3010, a bill that institutes responsible payday lending practices and prevents consumers from entering dangerous cycles of debt.
“For too long, consumers who are desperate for help have fallen prey to high-risk lending practices that hide a path of incessant debt behind upfront, easy cash,” said Assemblymember Limón. “Healthy credit markets are based on the principle of a borrower’s ability to repay, and both AB 2953 and AB 3010 support this principle by implementing responsible and fair lending practices.”
Since her appointment as Chair of the Assembly Committee on Banking and Finance (only the second women to ever hold this role), Limón has begun to address a largely untouched problem in the lending world, and has actively focused on implementing consumer protections in the small dollar consumer loan industry. In just six months of chairmanship, Limón’s courage and leadership in this area of consumer protection has already been recognized.
“As only the second women in California history to serve in this role, I do not take the responsibility that comes with this position lightly,” she said.
Both auto title lending as well as deferred deposit transactions, commonly known as payday lending, represent highly risky areas within the small-dollar consumer lending industry. Auto title lending, which requires consumers to pledge their vehicle as collateral on their loan, puts at risk one of a consumer’s most valuable assets and often their primary mode of transportation to work, school, and health care. Payday lending on the other hand, is a type of small dollar, short term loan that is one of the most expensive sources of money on the market.
Both of these types of lending are characterized by extremely high interest rates, and for so many consumers, represent the first step towards a relentless and unforgiving cycle of debt. Interest rates on car title loans often exceed 100%, making it difficult for a consumer to afford the monthly payment. According to the Department of Business Oversight’s annual report, of the 108,000 car title loans taken in 2016, 20,000 cars were repossessed due to title loan defaults. More simply, nearly one in five borrowers had their car repossessed.
Borrowers of payday loans on the other hand, paid an average interest rate of 372% in 2016, with 3.14 billion dollars in payday loans being issued in California that year. Furthermore, consumers commonly take on multiple payday loans at a time, with roughly half a million Californians taking out over 10 payday loans over the course of 2016. Senior citizens represented the largest portion of payday loan borrowers among all age groups.
“Because of too-high rates on title loans, Californians can not only lose their cars, but their jobs, and their ability to pay any of their bills,” said Assembly Speaker Anthony Rendon (D-Lakewood). “AB 2953 strikes a balance by ensuring access to credit and responsible lending practices. I commend Assemblymember Limón for leading the way on this policy of social and economic justice.”
AB 2953 establishes a 36% annual interest rate cap on auto title loans, while AB 3010 ensures that consumers are protected from the danger of “loan stacking”, scenarios where triple digit interest rates build up on many different loans all at once.
To hear the personal stories from individuals who have been directly and negatively impacted by payday lending practices, please visit: Pay Day Lending.
— Monique Limón represents the 37th Assembly District which includes Santa Barbara, Ventura, Goleta, Carpinteria, Ojai, Santa Paula, Fillmore, Buellton, Solvang, Summerland, Isla Vista, Montecito and parts of Oxnard. She currently serves as Chair of the Assembly Banking and Finance Committee.