With Assemblymember Monique Limon’s anti-predatory lending bill reportedly headed towards Senate action next week, scrutiny of the measure is increasing.
But something smells fishy here. From the Sacramento Bee:
For California borrowers trapped in loans with triple-digit interest rates, a proposed bill to impose a 36% cap might seem like a godsend.
If passed, Assembly Bill 539 would end a decades-long practice of allowing installment loans of $2,500 to $10,000 to carry such high interest rates by limiting that number to 36%.
But in striking a deal on the legislation with loan companies, Assemblywoman Monique Limón, D-Goleta, and consumer advocates decided the bill would apply only to interest on the loan itself.
It now leaves state agencies to continue oversight of other practices critics consider “predatory,” including credit insurance and additional fees that the Pew Charitable Trust says can unnecessarily increase borrowing by more than a third.
“We have found in our research that credit insurance often carries little to no value for consumers except maybe for quite large loans,” said Nick Bourke, director of consumer finance with Pew.
Pew notes that five of the largest national lenders reported $450 million in one year from ancillary product sales. Two major companies backing the proposal, Lendmark and OneMain, sell credit insurance.
Lendmark spent $60,000 on lobbying the Legislature in the first quarter of 2019; OneMain and Oportun, another lender, each spent $30,000. Community Loans of America spent $38,000 and recently contributed to the campaigns of several lawmakers sitting on the Senate Banking and Financial Institutions Committee.
Sacramento GOP political consultant Mike Madrid, who has long advocated for more sweeping lending changes, said that the legislation is “shape-shifting” predatory practices, like swapping a “Whopper for a Big Mac.”
“That’s disgusting,” he said. “You’re taking advantage of people. To have the speaker or the author hold this up because it has a lower interest rate is beyond belief. This is not eliminating predatory lending.”
Katy Grimes at the admittedly right-of-center California Globe seems to have spotted a big problem for Limon: Her legislation looks totally bought-and-paid for by corporate donors, specifically the companies exempted from the bill:
“The three lenders who offer these lower interest rates are not entirely honest with the borrowers,” Haynes, an attorney, said. “They engage in a practice known as ‘loan packing,’ that is, they use undisclosed or deceptive practices to increase their profits by adding on ‘products’ that are of little value to the customer, but create large amounts of revenue to the lender, that more than make up for the lost interest. So, if you are an honest broker of high risk, low dollar loans, you charge 50% to 100% interest on the loan to make up for the high default rate by non-creditworthy borrowers. If you are a dishonest broker, you lure the borrower in with a promise of lower interest rates, then stick them with add-ons, like credit insurance or ‘debt protection’ products which add lots of revenue to the lender, with little benefit to the consumer. So, if a competitor wants to compete with the dishonest companies, they have to be dishonest too. Some companies won’t do that, so they just leave the market.”
Haynes reported that 80 percent of Assemblywoman Limón’s campaign contributions this year have originated from these dubious lenders. “She then introduces a bill that benefits these companies, sells it as a pro-consumer bill (which the NCLC says is anything but), and the consumer gets the shaft, while Democrats pretend to be the consumers’ friends. Assemblywoman Limon, chair of the policy committee that heard and passed the bill, said nothing about the contributions, said nothing about the sharp practices by the businesses from which she received contributions with a bill specifically designed to help these businesses, and then she advances the ‘pay to play’ agenda of the Sacramento Democrats.” (our emphasis in bold)
This is not good news for Limon’s bill. Not only is it clear not progressive, it also looks like she’s selling pet legislation to the highest bidder.
Word on the street in Sacramento tonight is that Limon and allies of these companies are trying to paper over this saying all the add-on products they sell that push the cost of loans sky high are totally optional and voluntary and that customers “self select” them.
But as one critic of the legislation put it, “Why would you take insurance out on a loan that will not compromise your estate because you don’t have one?”
That’s a question Limon and other bill backers may need to answer before next week.
However, there’s a decent chance in view of what has been reported that she is going to need to shred her bill and start again next year– ideally with legislation that actually covers her campaign lenders, too, no matter how inconvenient for them, or her re-election.