California limits lending rates for consumer loans

The Fair Access to Credit Act (AB 539) was signed into law by California Governor Gavin Newsom on October 10, 2019. The act requires California Finance Law (CFL) licensed lenders making consumer loans from at least $2,500 to less than $10,000 to comply with the following:

• Lenders shall not charge a rate or service charges in excess of 36 percent plus the Federal Funds Rate.
• Before providing loans, lenders must offer, at no cost to the borrower, an approved credit education class, which must include the following information:
  • The value of establishing a credit score
  • How to establish a credit score
  • Factors that impact a credit score
  • How to check one’s credit score
  • How to obtain a free copy of one’s credit report
  • How to dispute an error in one’s credit report
• Lenders must not provide loans with terms less than 12 months, and such loans may not exceed the maximums under the act based on the principal amount of the loans. (Maximum terms range from 24 months and 15 days to 60 months and 15 days.)
• Lenders must report each borrower’s payment performance to at least one nationwide consumer reporting agency. Newly licensed lenders or lenders that don’t currently report borrower performance have until July 1, 2020, to meet this requirement, provided they report the performance of borrowers dating back to January 1, 2020.

The act makes sweeping changes for consumer lenders providing applicable loans to California consumers through their CFL licenses, decreasing rates that may be charged while increasing compliance costs and obligations.