As excerpted from Sacramento Bee
Hard-working Californians have long been the target of predatory lenders, which the California Supreme Court recently ruled can no longer offer loans with “unduly oppressive terms” and interest rates so high they are“unconscionable.”
While the decision is laudable, the court did nothing to clarify what defines “unconscionable” and what, if anything, the ruling will mean for working families who are borrowing at triple-digit interest rates and are trapped in an endless cycle of debt.
We believe that “conscientious credit” should be rooted in eight basic principles. First, lenders should verify a borrower’s ability to repay. Second, lenders should disclose the true cost of a loan, with no hidden fees. Third, loans should not have prepayment penalties or compounding interest, and the interest rate should be lower with bigger loans. Fourth, lenders should not make borrowers sign arbitration clauses or sell off debt to collectors before a default. Fifth, all lenders should report to credit bureaus so borrowers can repair their credit scores. Sixth, loans should have minimum payback terms, in months not weeks, so borrowers have time to avoid lump sum payments. Seventh, loan refinancing must be limited to borrowers who have paid off most of their original loan. Lastly, lenders should offer other financial products,especially in low-income communities.
In fact, California already has a lending policy that is helping hundreds of thousands of lower-income consumers and is rooted in these principles. And with Assembly Bill 237, which unanimously passed both the Senate and Assembly and is before Gov. Jerry Brown, the state is primed to create more low-cost access to larger loans for Californians.
The Legislature unanimously established the Pilot Program for Responsible Loans in 2010 for loans between $300 and $2,500 to help provide responsible alternatives to payday loans. The program has been working.