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Three New California Laws Will Impact Consumer Credit

Three new laws signed by California Gov. Gavin Newsom in recent days will impact consumer credit in the state by capping interest rates on payday and other consumer installment loans, giving automatic exemptions for bank account levies and removing exemptions for attorneys and mortgage loans from the Rosenthal Act.

California Financing Law Expanded

AB 539 amends the California Financing Law, which licenses and regulates finance lenders and brokers, by imposing new restrictions on loans of $2,500 or more but less than $10,000. It also adds a rate cap on those loans so that the annual simple interest rate may not exceed 36 percent plus the federal funds rate. The CFL currently imposes restrictions on loans of less than $2,500.

The amended CFL also requires that when lenders make loans of more than $2,500 but less than $10,000, they furnish to a national credit reporting agency the borrower’s payment performance. And, before disbursing the loan, the lender must provide the borrower a “credit education program or seminar.”

In addition, the CFL had restricted repayment of loans of at least $3,000 but less than $5,000 from exceeding a maximum term of 60 months and 15 days. Now, the amendment changes covered loans to at least $3,000 but less than $10,000.

The amendment provides that loans of $2,500 or more but less than $10,000 must have terms of at least 12 months. The maximum loan term of 60 months and 15 days does not apply to a loan secured by real property of at least $5,000.

Lenders may not charge a penalty for the prepayment of loans under the CFL, other than loans secured by real property.

Finally, the amendment expands coverage on open-end loan prescriptions for minimum monthly payments, fees, costs, and expenses by increasing the covered loans from loans not exceeding $5,000 to loans not exceeding $10,000 in principal.

The provisions are effective Jan. 1, 2020 and do not regulate entities already exempt from the CFL, such as national banks.

Automatic Bank Account Exemption

SB 616 amends various sections of the California Code of Civil Procedure and provides judgment debtors with an automatic exemption to funds held in bank accounts equal or less than California’s “minimum basic standard of adequate care for a family of four for Region 1” (MBSAC) provided by Section 11452 of the Welfare and Institutions Code.

The MBSAC can be annually adjusted and now stands at $1,724. This exemption is in addition to all other exemptions available to judgment debtors but is not available against executions for child or spousal support. The provisions become effective Sept. 1, 2020.

Attorneys and Mortgage Debt Now Subject to Rosenthal Act

California’s Rosenthal Act, like the federal Fair Debt Collection Practices Act, regulates the activities of debt collectors. The Rosenthal Act differed from the federal FDCPA by explicitly excluding attorneys from its definition of covered debt collectors. It also did not cover mortgage debt.

SB 187 amended the Rosenthal Act to delete the attorney exemption and to expressly include “mortgage debt.” The new law takes effect Jan. 1, 2020.

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Donald Maurice provides counsel to the financial services industry, successfully litigating matters in the state and federal courts in individual and class actions. He has successfully argued before the Third, Fourth and Eighth Circuit U.S. Courts of Appeals, and has represented the financial services industry before several courts including as counsel for amicus curiae before the United States Supreme Court. He counsels clients in regulatory actions before the CFPB, and other federal and state regulators and in the development and testing of debt collection compliance systems. Don is peer-rated AV by Martindale-Hubbell, the worldwide guide to lawyers. In addition to being a frequent speaker and author on consumer financial services law, he serves as outside counsel to RMA International, on the governing Board of Regents of the American College of Consumer Financial Services Lawyers and on the Governing Committee of the Conference on Consumer Finance Law. From 2014 to 2017, he chaired the ABA's Bankruptcy and Debt Collection Subcommittee.

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