Even in a growing economy, the sad truth is that California still faces vast income inequality in all regions of the state. So, despite the fact that we now rank as the fifth-largest economy in the world, millions of Californians continue to face deep financial insecurity.
And in a state with as expensive of a cost of living as California, we need to ensure that everyone has access to reliable, legitimate sources of credit when they need it. That means ensuring that our state’s laws and regulations foster an environment that expands, rather than restricts, access to safe loan options – particularly for those who have a subprime credit score.
Unfortunately, however, Sacramento legislators are contemplating multiple pieces of legislation, including Assembly Bill 2500, that would effectively eliminate many of the loan options Californians now use to help manage unexpected expenses and weather financial emergencies.
Blocking families from accessing certain types of loans would be particularly damaging for African American families. According to a study by the Center for the New Middle Class, even when African Americans have credit scores of 700 or above – generally considered to be a “good” score on a scale of 300 to 850 – their financial wellness resembles those with much lower credit scores. In fact, 80 percent of these families were likely to say that they live paycheck-to-paycheck, they were two and a half times more likely to overdraft on a bank account and they 28 percent less likely to have $1,200 set aside for a financial emergency.
For these families, having a range of safe, regulated loan options available to them can help mitigate the shock of an unexpected expense. After all, if your child breaks an arm, the hospital bills need to get paid. If your car breaks down, you need to fix it in order to be able to get to work. Yet, according to the Federal Deposit Insurance Corporation, one in five households in California that applied for bank credit were denied; taking away loan options, as AB 2500 threatens to do, only makes it harder for Californians to bridge the gap when faced with a financial emergency.
To be clear, our leaders in Sacramento do have a responsibility to ensure that the loans Californians get are closely regulated and to ensure that the companies that make tehse loans abide by robust consumer protections. But the interest rate cap outlined in AB 2500 would push responsible, licensed companies out of the market; in fact, the measure would eliminate 74 percent of installment loans between $2,500 and $10,000, resulting in unmet consumer loan demand of $2 billion. The result? Customers will have little choice but to turn toward overdraft fees, unregulated offshore loans or other risky means to meet financial obligations.
In short, AB 2500 leaves millions of people without the loan options they need and deserve to manage financial emergencies and move forward. To ensure African Americans and all Californians have access to safe, reliable loans, California needs to maintain a business-friendly atmosphere and a practical approach to lending that doesn’t reduce options for those who have a subprime credit score. AB 2500 hurts our community’s ability to access responsible, regulated credit options, and it deserves to be rejected by the California State Legislature.
