Credit bill will hurt loan availability

The California Legislature has just passed AB 539, which will significantly reduce the ability of millions of Californians to access credit when needed. Legislators will tout the bill passing as a success, when in reality, it benefits a small group of lenders at the expense of everyday Californians with less-than-perfect credit.

California has one of the highest costs of living in the nation and it can be extremely difficult to budget and save for financial expenses. I talk with hardworking members of our communities every week, and they need more – not less – options.

Without access to these regulated loans, what credible alternatives do Californians who don’t have a prime credit score have?

I agree that the Legislature should act to protect consumers who use non-prime loans from the bad actors, but AB 539 effectively eliminates the entire market for regulated small dollar loans that our citizens, including many Latinos, rely on to deal with a financial emergency.

Simply mandating arbitrary price controls is not the right answer. The evidence has shown that states that have enacted rate caps haven’t achieved the desired outcome of protecting and supporting consumers. 

The State of Georgia, according to a study done by the Federal Reserve Bank of New York, saw a 13 percent rise in the amount of bounced checks, and consumers paid an extra $36 million in bounced check fees after a rate cap was instituted. There was also a sharp rise in complaints about debt collectors.

The Legislature had an opportunity to learn from these lessons in other states and work towards a balanced solution that really works for consumers. Instead, AB 539 will reduce the availability of state-regulated loans by more than a billion dollars. This massive reduction in available capital hurts our citizens and represents money that will no longer flow through our economy, further hurting our businesses. 

Without access to these regulated loans, what credible alternatives do Californians who don’t have a prime credit score have?

We know that the state’s small-dollar lending pilot program can’t successfully lend at the required rates under AB 539, and the politically–favored lenders this bill promotes over open competition can’t or won’t serve this market. If they could, they would have already done so. Those that do issue loans will often load them up with add-on products, like credit insurance, which can bring the cost for consumers well above 36%. The reality is that many honest, hard-working families may be forced  to rely on more costly options, such as over-drafting their account, stacking up late fees and utility reconnection charges, or borrowing from an unregulated lender. 

Preventing people in our state from getting the loans they need is a misguided policy that will have very real consequences for those who most need it.
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Editor’s Note: Julian Canete is president of the California Hispanic Chambers of Commerce