Consumer Finance Insights
November 19, 2019

California Signs Two New Consumer Protection Bills into Law

On September 25, 2019, California’s Governor signed into law two bills that impact financial consumer services companies in California: California Assembly Bill 539 and California Senate Bill 187.  Both laws go into effect January 1, 2020.

California Assembly Bill 539 (AB 539) imposes new regulations and restrictions on loans of more than $2,500, but less than $10,000, made by financial lenders and brokers (the Licensees) to California consumers.  AB 539 is also known as the Fair Access to Credit Act.  It amends the California Financing Law (CFL)–California’s regulatory scheme for consumer loans–by: (1) imposing an annual simple interest rate of 36% plus the Federal Funds rate cap to the loans; (2) mandating that Licensees report consumers’ payment performance on the loans to a credit reporting agency, at no cost to the borrowers; (3) mandating Licensees provide a “credit education program or seminar” to borrowers that has been “previously reviewed and approved by the commissioner;” (4) including any fees paid to Licensees “for the privilege of participating in an open-end credit program” in the calculation of what constitutes a loan made for more than $2,500, but less than $10,000; (5) prohibiting Licensees from entering into contracts for the Loans which provide a scheduled repayment that is less than twelve (12) months; and (6) prohibiting Licensees from charging, imposing or receiving any penalty for prepayment of a loan (with certain exceptions).

AB 539 also changes existing law, which currently prohibits loans between $3,000 and $5,000 from exceeding a maximum term of 60 (sixty) months and 15 (fifteen) days, by extending this prohibition to loans up to $10,000.  This prohibition does not apply to loans over $5,000 that are secured by real property, however.  In addition, AB 539 increases the regulatory threshold for “open-ended” loans from $5,000 to $10,000.

California Senate Bill 187 (SB 187), on the other hand, amends the existing California Rosenthal Fair Debt Collection Practices Act (Rosenthal Act).  Like the federal Fair Debt Collection Practices Act, the Rosenthal Act regulates the collection of consumer debts by debt collectors.  Under the existing law, “consumer debt” is not defined to include a mortgage debt, and attorneys and counselors at law are excluded from the definition of “debt collector.”  With SB 187’s amendment of the Rosenthal Act, mortgage debt is explicitly included in the definition of consumer debt and the exception for attorneys and counselors at law is removed from the definition of debt collector.

Lenders and debt collectors dealing with California consumers will have to be cognizant of these regulatory changes, which broaden California’s regulatory umbrella, in the coming year.

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