On the last day of California’s 2019 legislative session, by a vote of 61 to 8, the California State Assembly overwhelmingly passed Assembly Bill 539, the Fair Access to Credit Act. Governor Newsom has until October 13th to sign or veto the bill.

As we’ve previously covered, AB 539 makes significant amendments to the California Financing Law. Most importantly, the bill limits the rate of interest that may be imposed on loans of $2,500 – $10,000 to 36% plus the federal funds rate (which is currently hovering around 2%) per annum. These loans previously had no express interest rate limitation (although, some high interest loans have been attacked for price unconscionability.

In addition to capping the rate on loans of $2,500 to $10,000, the bill also:

  • Requires creditors to furnish credit information to at least one national consumer reporting agency;
  • Imposes an obligation on creditors to offer borrowers a Department of Business Oversight approved credit education program or seminar;
  • Prohibits prepayment penalties for loans that are not secured by real property;
  • Expands existing loan term restrictions to require that loans of $3,000 to $10,000 be repayable in no more than 60 months and 15 days; and
  • Establishes a minimum 12 month loan term for loans of $2,500 to $10,000.

If the bill becomes law it will impact nearly half of the $3 billion California loans that are originated under the CFL, and California will join approximately 40 other states that have express interest rate caps for these types of loans.