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Pro AB 539: Historic opportunity to stop legal loan sharking in California

Predatory lenders are preying on Californians where consumer protection laws are weaker than 37 other states.

I know the harms of these products firsthand. Years ago, after California allowed predatory lenders into the state, a family member of mine was caught in one of these debt traps — taking out loan after loan to pay back an original loan that had a triple digit interest rate. This was a terrible and frightening experience. Our family came together to help her out of these loans. In other instances, borrowers become so stressed out due to their financial despair that they have contemplated suicide. This debt trap is devastating.

Dolores Huerta new.JPG
Dolores Huerta

Currently, California law does not limit the interest rate that can be charged on loans of more than $2,500. Many Californians apply for a loan of $1,000, where the state protects consumers with an interest rate cap of approximately 36%, but the lenders conveniently approve them for a $2,501 loan instead. Why is that? Because lenders can charge whatever interest rate they want for loans above $2,500, and all of those borrowers are likely paying more than 100% annual percentage rate.

But the danger doesn’t stop there. Not only will borrowers have to pay outrageous, high-interest fees, but they’re at risk of losing their bank accounts, damaged credit scores, aggressive debt collection, wage garnishment, and even bankruptcy. This is a win-win situation for predatory lenders who recoup the loan proceeds after six to 12 months of loan payments, and then can charge off any balance in their taxes.

These loan sharks advertise “fast cash” as “access to credit” when really they’re opening the door to unaffordable debt traps. Even worse is that these lenders target Latinx and African American borrowers by setting up stores in our neighborhoods, advertising aggressively on our radio stations, and making direct marketing calls to our families. Credit unions, like the one that Cesar Chavez and I started for farm workers, offer much lower interest rates, as well as nonprofits and faith-based organizations that offer 0% interest rate loans and assistance to families. However, Californians are being inundated marketing by predatory lenders.

Pay day and car title lenders have spent millions of dollars in campaign contributions to legislators and on lobbyists in Sacramento to kill any type of consumer protection bills. In just the first three months of this year, they spent half a million dollars on lobbyists! Why? Because we are close to passing a bill that will provide relief to Californians.

Assemblywoman Monique Limón, D-Santa Barbara, who currently leads the Assembly Banking Committee, has introduced a bill to cap interest rates at approximately 36% for loans of more than $2,500. The bill, AB 539, is supported by community and faith-based organizations, labor groups, cities and counties, and lenders, except the ones that charge 100% APR or more.

At the federal level, we’re seeing efforts now to roll back important consumer protection laws that would make families across the country vulnerable to financial abuse. But instead of reverting back to lax regulation that gave us the Great Recession, here in California we’re finding ways to protect struggling families.

We need AB 539 signed into law. California has been at the forefront of passing and implementing historic laws: environmental protection, renewable energy policy, immigration, gun safety, marriage equality, and housing reform.

In almost every avenue of public policy this state has been a leader in leveling the playing field for families working to get ahead.

We can’t let these harmful predatory loans continue to keep people in debt traps. Please join me in urging our legislators to support this important proposal. We have a responsibility to finally get this done, and luckily, we now have a solution to make it happen.

Dolores Huerta is co-founder of the National Farmworkers Union, which became the United Farm Workers. She is a longtime civil rights leader and Presidential Medal of Freedom recipient.
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