Obrea O. Poindexter, Sean Ruff, Nancy R. Thomas, and Joseph Gabai
Financial Services and Finance
As expected, California has enacted legislation imposing interest rate caps on larger consumer loans. The new law, AB 539, imposes other requirements relating to credit reporting, consumer education, maximum loan repayment periods, and prepayment penalties. The law applies only to loans made under the California Financing Law (CFL). Governor Newsom signed the bill into law on October 11, 2019. The bill has been chaptered as Chapter 708 of the 2019 Statutes.
As explained in our Client Alert on the bill, the key provisions include:
The enacted version of AB 539 tweaks some of the earlier language of these provisions, but not in a substantive way.
The bill as enacted includes several new provisions that expand the coverage of AB 539 to larger open-end loans, as follows:
Our earlier Client Alert also addressed issues relating to the different playing fields currently enjoyed by banks, concerns relating to the applicability of the unconscionability doctrine to high rate loans, and the future of rate regulation in California. All of these concerns will remain in place once AB 539 becomes effective on January 1, 2020. Moreover, the ability of subprime borrowers to obtain needed credit once AB 539’s rate caps are effective is uncertain.
 California Financial Code Section 22000 et seq.
 California Financial Code Section 22305.
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