In a recent op-ed in the San Francisco Chronicle, entitled, “Supposed Payday Loan Reform is a License for Predatory Lending, https://www.sfchronicle.com/opinion/openforum/article/Open-Forum-Supposed-payday-loan-reform-is-a-14371994.php?psid=j9NVn, FTCAdLaw’s William Rothbard unmasked consumer lending legislation then pending in the California Legislature that pretended to be pro-consumer but in fact is a trojan horse for lenders to deceive and exploit vulnerable borrowers in need of short-term loans. The legislation, AB 539, which has since passed the Legislature and is expected to be signed by the governor, appears on the surface to benefit consumers because it caps the annual percentage rate (APR) at 36%. While still high, 36% is considerably lower than uncapped small-dollar loan APRs. What the legislation doesn’t prohibit, and does not even mandate disclosure of, are add-on fees and products (such as “credit life,” a useless form of insurance) – a practice known as “loan packing” – that can increase loan costs by as much as 300%.
In his article, Rothbard advocated a ban on loan packing or at least clear and conspicuous disclosure of it so the consumer would know the true cost of the loan. Otherwise, he wrote, “AB 539’s loophole for such practices would do more harm than good to vulnerable California families….it’s not so much a consumer protection bill as a cleverly disguised license for unfair and deceptive lending.” Unfortunately, the bill passed without those improvements.
Building on its success in California, the small-dollar lending industry is now setting its sights on Congressional enactment of similar legislation for the whole country.