SACRAMENTO -- A coalition of consumer, civil rights, faith-based and veterans groups ended a tour of the state with a rally at the State Capitol in efforts to support a bill that caps interest rates on personal loans.
Over the years, payday loans and other loans usually made on an emergency basis have been the target of lawmakers who have capped them at 36% plus a 2% federal loan fee.
But loans over $2,500 or more are not regulated. Californians for Economic Justice says poor people and people of color who need short-term loans in a financial crisis are steered toward the higher loan amounts so they can be charged up to 200% in interest.
"A $2,500 loan will end up costing someone upwards of $16,000,” said Pastor Shane Scott with the Macedonia Baptist Church in Los Angeles. "It’s a never-ending, vicious cycle and it is diabolical, it’s wicked and it’s damnable."
He said it is a civil rights and equal justice issue because the poor are saddled with debts they can’t pay and end up with bad credit. That means they are forced into more high interest loans in financial emergencies.
A bill by Assembly Member Monique Limón would cap interest on loans of between $2,500 and $10,000 at 38%. That is still high but it is a compromise with the high-powered lending lobby, which has fought efforts over the years to lower interest rates on such loans.
"They don’t need to charge 100, 150, 200 or even more interest rate to make a profit," Limón said. "It really is a compromise to ensure that the product is there at a more reasonable rate at a time of need."
Her bill was passed on the Assembly floor with bipartisan support, but the lending lobby still wields a lot of influence. There is no guarantee that the bill will survive in the state Senate, or at least not in its present form.