United States: Assembly Bill 539 And The Future Of Consumer Loans In California

The California legislature is poised to cap rates on larger consumer installment loans. Assembly Bill 539 has passed the state Assembly and the state Senate Committee on Banking and Financial Institutions. Although directed only to California Financing Law (CFL) licensees, the bill has broader implications for consumer installment lending in California.

AB 539’s Key Provisions for Consumer Installment Loans

The bill would amend the CFL and impose rate caps on all consumer-purpose installment loans, including personal loans, car loans, and auto title loans, as well as open-end lines of credit, where the amount of credit is $2,500 or more but less than $10,000 (“covered loans”). The CFL already caps the rates and imposes additional consumer protections on consumer-purpose loans of less than $2,500.1 

The July 1st version of AB 539 would require California finance lenders to:

  • Avoid charges on a covered loan that exceed a simple annual interest rate of 36% plus the Federal Funds Rate set by the Federal Reserve Board. While a discussion of what constitutes “charges” is beyond the scope of this alert, note that the bill continues to allow finance lenders to impose certain administrative fees in addition to permitted charges;
  • Report borrowers’ payment performance to at least one national credit bureau;
  • Offer a free consumer credit education program approved by the California Commissioner of Business Oversight before loan funds are disbursed; and
  • Provide covered loans with terms of at least 12 months. However, covered loans of at least $2,500, but less than $3,000, may not exceed a maximum term of 48 months and 15 days. A covered loan of at least $3,000, but less than $10,000, may not exceed a maximum term of 60 months and 15 days, but this limitation does not apply to real property-secured loans of at least $5,000. The provisions relating to loan terms would not apply to open-end lines of credit or certain student loans.

In addition, the bill would prohibit the imposition of prepayment penalties on consumer loans of any amount, other than loans secured by real property.

AB 539’s sponsors, Assembly Members Monique Limón (D-Santa Barbara), and Tim Grayson (D Concord), contend that AB 539 will halt the proliferation of larger installment loans with triple-digit rates targeted to vulnerable consumers.2 Nevertheless, others are concerned that AB 539 would harm subprime consumers, reducing much needed access to credit.3 

A Different Playing Field for Banks

The bill would apply only to loans made by California finance lenders. Thus, banks, savings associations, credit unions, and certain other classes of lenders would not be subject to AB 539’s rate cap and other protections. Banks, industrial banks, and savings institutions located outside California that are authorized by federal law to export their permitted interest rates when making loans in California will still be permitted to do so. For loans of $10,000 or more, even CFL licensees would not be required to comply with the bill’s new rate cap.4  

Continued Concerns Relating to Unconscionability

Importantly, a finance lender that makes a high rate loan that is lawful under the CFL may still be subject to a state law claim of unconscionability based on the loan’s allegedly excessive rate. In 2018, the California Supreme Court held that loans made by a CFL lender could be unconscionable based on their interest rates even though the CFL exempted the loans in question from rate caps.5 An earlier version of AB 539 would have clarified that a loan could not be deemed unconscionable based on its interest rate alone; however, the July 1 version of AB 539 does not contain the clarifying text.

The Future of Rate Regulation in California

If AB 539 is enacted, what can the lending industry expect the California Legislature to do next?  Will rate caps be extended to CFL loans of $10,000 or more, or to small business loans? Will the legislature seek to impose rate caps on non-CFL lenders (except those banking institutions that can make loans that preempt state interest rate laws)? Uncertainty regarding these and related issues means that the legislation should give pause to both CFL and non-CFL lenders alike.

The Timeline for Legislative Enactment Leaves Little Room for Amendments

Under California’s legislative schedule, the full Senate must approve the bill by September 13 – but the legislature is on recess from July 12 to August 12. If the Senate approves the measure, Governor Gavin Newsome then has until October 13 to sign or veto the legislation.6 As of July 2, 2019, Governor Newsome has not publicly stated whether he will sign AB 539, although proponents point to his inaugural address in which he specifically cited the need for greater protections on payday loans.7 


[1] Cal. Fin. Code § 22303.

[2] https://a14.asmdc.org/press-releases/lim%C3%B3n-and-grayson-introduce-interest-rate-cap-predatory-loans

[3] See, e.g., California Lawmakers Seek to Squelch High Interest Loan Industry, Jeremy White, April 15, 2019,  https://www.politico.com/states/california/story/2019/04/15/california-lawmakers-seek-to-squelch-high-interest-loan-industry-966906; Bill to Throttle Short-Term Lending Will Prove Disastrous, Kira Davis, April 22, 2019, https://californiaglobe.com/legislature/bill-to-throttle-short-term-lending-will-prove-disastrous/

[4] However, the bill contains certain provisions that would preclude a finance lender from attempting to circumvent the new restrictions imposed on covered loans. In addition, the bill does not cover commercial purpose loans, even if made to an individual running a small business.

[5] De La Torre v. Cashcall Inc., 5 Cal. 5th 966 (Ca. S. Ct. 2018).  In concept, similar challenges might be asserted against other lenders that enjoy exemptions from the California usury law.

[6] https://www.senate.ca.gov/sites/senate.ca.gov/files/2019_senate_legislative_deadlines.pdf

[7] https://www.latimes.com/politics/la-pol-governor-gavin-newsom-inaugural-speech-20190107-htmlstory.html

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions