Last week, California Governor Newsom signed into law AB 539, which makes significant amendments to the California Financing Law (CFL), and SB 616, which creates a new exemption from levy for deposit account funds.

The Governor signed AB 539 on October 10.  Most importantly, the CFL amendments limit 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.)  The amendments are effective January 1, 2020.

The Governor signed SB 616 on October 7.  The law adds a new section to California’s Code of Civil Procedure that exempts from levy without a claim by the debtor funds in a deposit account in an amount that has been determined by the state’s Department of Social Services to be the “minimum basic standard of adequate care for a family of four for Region 1” as adjusted annually.  That amount for 2019 is $1729.  The exemption does not apply to money levied on to satisfy certain obligations such as wages owed or child or spousal support.  The new exemption is effective September 1, 2020.

 

 

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.

AB 539 was cleared by the California Senate’s Banking Committee on June 26.  The bill would change several aspects of the California Financing Law (CFL), including by setting new interest rate caps, imposing new rules governing loan duration, and prohibiting prepayment penalties.  For example, while the CFL does not set a maximum interest rate on loans of $2,500 or more, AB 539 would cap the interest rate at 36% plus the federal funds rate on loans of $2,500 or more but less than $10,000.

In the Banking Committee, the bill was amended to require finance lenders to report a borrower’s payment performance to at least one nationwide consumer reporting agency and offer the borrower at no cost an approved credit education program or seminar before disbursing loan proceeds.

The bill cleared the California Assembly in May 2019 and now moves to the Senate Judiciary Committee, which observers also expect it to clear.  The Judiciary Committee hearing is scheduled for tomorrow, July 9.

 

 

The California Senate’s Banking and Financial Institutions Committee will hold a hearing on AB 539 on June 26, 2019.  The hearing was previously scheduled for today.

AB 539 was cleared by the California Assembly on May 23.  The bill would change several aspects of the California Financing Law (CFL), including by setting new interest rate caps, imposing new rules governing loan duration, and prohibiting prepayment penalties.  For example, while the CFL does not set a maximum interest rate on loans of $2,500 or more, AB 539 would cap the interest rate at 36% plus the federal funds rate on loans of $2,500 or more but less than $10,000.

Observers believe that the June 26 hearing will play a key role in determining the bill’s future.

 

 

 

Last week, by a vote of 60 to 4 (with 16 not voting), the California Assembly cleared AB 539, which would change several aspects of the California Financing Law (CFL), including by setting new interest rate caps, imposing new rules governing loan duration, and prohibiting prepayment penalties.  For example, while the CFL does not set a maximum interest rate on loans of $2,500 or more, AB 539 would cap the interest rate at 36% plus the federal funds rate on loans of $2,500 or more but less than $10,000.  (See our prior blog post for other limitations that would be imposed by AB 539.  However, the provisions regarding unconscionability were deleted from the version of the bill passed by the Assembly.)

The bill now moves to the California Senate, where an early June hearing is expected.

A bill introduced last week in the California State Assembly could change the consumer lending landscape in California considerably. The bill, AB 539, would change several aspects of the California Financing Law (CFL), including setting new interest rate caps, imposing new rules governing loan duration, and prohibiting prepayment penalties. Additionally, AB 539 would change the CFL to make clear that a loan’s rate cannot be used as the sole factor in determining whether a loan is unconscionable. According to the bill’s authors, these changes are necessary because of the “looming threat of a potential ballot initiative,” and due to the uncertainty caused by the California Supreme Court’s recent De La Torre decision which opened the door for borrowers to claim that high-rate consumer loans are unconscionable.

AB 539 would make these changes to the CFL:

  • At present, the CFL does not set a maximum interest rate on loans of $2,500 or more. AB 539 would cap the interest rate at 36% plus the federal funds rate (2.4% as of today) on loans of $2,500 or more but less than $10,000.
  • The CFL provides certain factors to determine whether a loan is of a “bona fide principal amount” or if there has been some artifice to evade regulation under the CFL. AB 539 would apply these factors to loans of $2,500 or more but less than $10,000.
  • At present, the CFL prohibits loans of at least $3,000 but less than $5,000 from having a term greater than 60 months and 15 days. AB 539 would increase this upper limit from $5,000 to $10,000.
  • At least for loans in excess of $2,500 up to $10,000, AB 539 would prohibit CFL licensees from issuing a loan with a term of less than 12 months.
  • AB 539 would add a section to the CFL providing that no licensee may impose a prepayment penalty for any loan not secured by real property.

California’s unconscionability doctrine is incorporated into the CFL. Although it was once widely thought that loans with no interest rate cap under the CFL could not be unconscionable, in De La Torre the California Supreme Court held that consumers could use California’s Unfair Competition Law to claim that high-rate loans were unconscionable and therefore violated the CFL. AB 539 expressly provides that a CFL-regulated loan cannot be found unconscionable based on the interest rate alone. In our view, this provision is theoretically unnecessary. In De La Torre, the California Supreme Court held that courts must consider all the circumstances of the loan before declaring that a loan’s rate is unconscionable. Specifically, courts must consider “the bargaining process and prevailing market conditions,” which is “highly dependent on context” and “flexible” according to the Court. In other words, courts properly following De La Torre could not solely consider a loan’s rate to determine unconscionability in any event. That said, the bill would be helpful in that it would foreclose unconscionability arguments based on the rate alone.