Key Regulations for Subprime Lenders in California (Post-AB 2953 Enactment)

Car Title Loans (Regulated under the California Financing Law – CFL)

Car title loans are nonpurchase money loans with a bona fide principal amount of $2,500 or greater, where the lender obtains a security interest in a motor vehicle.

The following regulations now apply, incorporating the changes from AB 2953:

Interest Rate Cap

• Current Regulation (Post-AB 2953):
• CFL licensees are prohibited from charging more than 3% per month (equivalent to 36% APR) on the unpaid principal balance of title loans of $2,500 or greater.

• This cap applies uniformly to all title loans, including those above $10,000.

Administrative Fee Cap

• For loans above $2,500, administrative fees are capped at $75 (Section 22305).

Loan Term Restrictions

• For loans under $5,000, the maximum loan term is 60 months plus 15 days (Section 22334).

Payment Structure

• For loans under $10,000, payments must be structured in equal, periodic installments (Section 22307).

Collateral Restrictions

• Secured by a motor vehicle (personal property); prohibition on requiring real property as collateral for loans under $5,000 (Section 22330).

Delinquency Fees

• For loans under $5,000, delinquency fees are capped at:
  • $10 for loans 10 or more days delinquent.
  • $15 for loans 15 or more days delinquent (Section 22320.5).

  Additional Restrictions

  • For Loans Under $5,000:
  • Prohibition on compound interest or charges (Section 22309).
  • Requirement to prominently display a schedule of charges to borrowers (Section 22325).
  • Prohibition on splitting loans with other CFL licensees (Section 22327).
• For Loans Under $10,000:
• Limits on conducting other business activities at the loan premises (Section 22154).

• Standards for selling insurance to borrowers (Sections 22313 and 22314).

• For Loans of $10,000 or Above:
  • • While general CFL restrictions are minimal, the 36% APR cap now applies to title loans in this range due to AB 2953.

  Pilot Program for Small Dollar Loans (CFL Sections 22365 et seq.)

  • Applies to loans between $300 and $2,500 (less relevant for typical title loans above $2,500).
  • Interest rates are capped at approximately 36%:
  • Specifically, the lesser of 36% or 32.75% plus the prime rate for up to $1,000.
  • 35% or 28.75% plus the prime rate for amounts above $1,000.
  • Includes underwriting requirements (e.g., borrower’s debt service must not exceed 50% of gross monthly income).