Needed: Protections for consumers from high-interest loans

A photo illustration depicting sky-high interest rates. (Image: Becky Stares, via Shutterstock)

Lendmark Financial Services, a consumer finance company that mostly serves the non-prime personal loan market in California, has been actively engaged in the debate about the state’s unregulated interest-rate environment for large-dollar loans since we began lending here several years ago.

High-cost, extreme interest rates are having a detrimental impact on the financial stability and well-being of both credit markets and borrowing consumers. We strongly support Assembly Bill 539 (Limón) as the right approach for consumers to have a loan that is affordable and accessible while promoting a sustainable, healthy credit market for lenders.

These high-cost, long-term loans are clearly not a safe option for financially struggling consumers.

AB 539, which overwhelmingly passed the California Assembly with a bipartisan vote last month, offers a real solution to address the growing, corrosive effects of unregulated interest rates in California’s consumer lending market. This important legislation will protect California’s financially vulnerable borrowers from what can only be described as interest rate “price gouging” in a time of need or emergency.

By establishing a credit option that promotes the beneficial alignment of interests between borrowers and responsible lenders, California can finally free vulnerable consumers from the punitively high interest rates that have plagued this state for far too long.

According to the state of California’s industry regulator, in just the past few years California has witnessed a virtual explosion in extreme, high interest-rate loans, growing from just 7.3% of loans made in 2009 to an astonishing 47.3% in 2017. These high-rate, large-dollar loans come with a crushing price tag for vulnerable households, who are then trapped into budget-busting repayment interest rates of 100%, 150%, 200% or even higher.

This is why Lendmark has joined with other state licensed responsible lenders, a wide range of consumer advocacy groups, labor organizations, along with cities and counties around the state to promote AB 539’s sustainable approach to end extreme interest-rate loans while protecting an affordable and accessible consumer credit market for non-prime borrowers.

Opponents of AB 539 argue they are “defending” consumer options and access to desperately-needed cash. They say that regardless of how expensive the credit cost is, or how much it will weigh down a struggling household budget, the only thing that matters is continued access to loans – no matter how high the cost.

Wealth-stripping credit products are a financial trap that can place consumers in a long-term debt repayment hardship for years to come.

Such extreme positions do not support healthy credit markets. They are not in the best interest of Californians in their time of need, especially the financially distressed households seeking quick credit.

These high-cost, long-term loans are clearly not a safe option for financially struggling consumers. How many borrowers who are living paycheck to paycheck, the very borrowers that AB 539 opponents claim benefit from their loans, will be forced to trade off basic needs just to cover these extreme interest loan repayments? How does a borrower who is living paycheck to paycheck benefit from, let alone pay off, a 200% $3,000-dollar loan?

The truth is, such wealth-stripping credit products are not a financial lifeline, as claimed by opponents, but instead a financial trap that can place consumers in a long-term debt repayment hardship for years to come. This is nothing more than throwing a lead-weighted life preserver to someone who is drowning. California can do better by passing AB 539.

Now, after many years of legislative debate and indecision on how best to bring about an end to a lending practice that is overwhelmingly rejected by a majority of Californians from all backgrounds as both extreme and unacceptable, this state’s elected representatives can finally take control of the “wild west” interest rate market.

It is now time for the state Senate to stand up and take a principled stand against this “price gouging” of the most vulnerable of Californians.

By supporting AB 539, California State Senators can promote affordable, accessible large-dollar credit for non-prime borrowers while ensuring that they will not be needlessly bound into a modern-day version of debt servitude by high-cost loans carrying 100% interest rates or more. It is the right thing to do.

Editor’s Note: Chris McKinley is Senior Vice President of Governmental Affairs for Lendmark Financial Services.


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