Assembly again favors lenders over consumers

by editorial, Sacramento Bee

The Assembly Banking and Finance Committee is one tough group, unless you happen to be a subprime lender.

Later today, the banking committee will take up a bill by Assemblyman Roger Dickinson, a Sacramento Democrat who is seeking to provide some protection to low-income borrowers who take loans out against their cars.

But the difference between the bill as proposed and amended is instructive. The new version is significantly watered down, to the benefit of lenders and detriment of borrowers.

Auto title loans are a last resort. Borrowers, some of them illegal immigrants, give the titles to their cars in exchange for loans for the value of their cars, less the potential cost of repossession and profit for a lender.

For a car worth $5,000, a borrower might receive $4,000. The minimum loan amount is $2,500. At an interest rate of 10 percent per month, the monthly payment would be $250.

Dickinson had sought to cap the annual interest rate at 36 percent, high by any standard. But as a starting point, the committee, following lenders’ requests, insisted that Dickinson eliminate any cap.

As a result, lenders would be able to continue charging interest rates of 10 percent a month, which pencil out to more than 100 percent per year.

Another amendment eliminates a provision that would have barred lenders from giving loans to individuals whose debt-to-income ratio exceeded 50 percent, essentially people who are so deeply in debt that they cannot hope to repay the loans.

An industry trade group is opposing Dickinson’s proposal that lenders run a credit report on borrowers. The reason: requiring credit reports would "completely cut off credit to anyone without a Social Security number."

"California has a large segment of its population who are undocumented and for them, title loans are often the only source of capital available to them," the trade group wrote in comments about the bill.

Dickinson had a choice. As Banking Committee Chairman Mike Eng, a Democrat from Monterey Park, noted, bill authors can heed committee members’ concerns, or "have the bill go down in flames." Despite the amendments that water it down, Dickinson’s AB 336 does offer a few protections, including clear disclosure about interest rates and the ultimate cost of paying off the loan. The legislation also would permit lawsuits for violations of its provisions.

As it stands, the bill offers modest protection for desperate people in need of loans. But the Banking Committee has again shown its true colors by deciding to grant lenders protection as well.