CA Caps Interest Rates for Certain Loans Made by Licensed Finance Lenders

The California legislature recently passed a bill, entitled the “Fair Access to Credit Act,” which amends the California Financing Law (CFL) by, in part, imposing a maximum interest rate on loans made by licensed Finance Lenders between $2,500 and $10,000.  The bill becomes effective on January 1, 2020.

Specifically, with respect to a loan of a bona fide principal amount of $2,500 or more but less than $10,000, the bill authorizes licensed Finance Lenders to contract for or receive charges at a rate not exceeding an annual simple interest rate of 36% plus the Federal Funds Rate.  Licensed Finance Lenders making such loans must, among other things, report each borrower’s payment performance to at least one consumer reporting agency that compiles and maintains files on consumers on a nationwide basis.  Additionally, they must offer, at no cost to the borrower, a credit education program or seminar that has been previously reviewed and approved by the Department of Business Oversight’s Commissioner.

Moreover, the bill prohibits a licensed Finance Lender from entering into a contract for a consumer loan that is at least $2,500 but less than $10,000 that provides for a scheduled repayment of principal that is less than 12 months.  With respect to the CFL’s current provision restricting the maximum loan term for certain loans to 60 months and 15 days, the bill adds an exemption for loans secured by real property of a bona fide principal amount of at least $5,000.  In addition, except for a loan secured by real property, the bill prohibits a CFL licensee from charging, imposing, or receiving any penalty for the prepayment of a loan under the CFL.  Further, the CFL, as amended by the bill, will now cover open-ended consumer loans of a bona fide principal amount not exceeding $10,000 (which is an increase from the current $5,000 threshold).