October 18, 2018, SAN FRANCISCO — Everything that is wrong with a high-cost loan is only made worse when the loan is larger and longer. Yet, California and 11 other states place no numerical cap at all on the annual percentage rate (APR) for a $10,000 five-year non-bank installment loan, leaving 90 million people in the United States, and 39 million in California, subject to triple-digit APRs on predatory installment loans, according to a new report from the National Consumer Law Center. These high-cost installment loans can trap people in a cycle of debt that can be nearly impossible to escape.

“People of color, senior citizens, immigrants, and other vulnerable populations are more likely to fall prey to high cost loans in California. To pad their pocketbooks, corporate high-cost lenders are preying on the most vulnerable people, while trapping borrowers in a vicious cycle of debt that leaves families in financial ruin,” said Paulina Gonzalez executive direct of the California Reinvestment Coalition.

“Communities of color need access to credit, but they need it on fair and reasonable terms, with strong protections against abuse and exploitation,” said Greenlining Institute President Orson Aguilar.

A Larger and Longer Debt Trap? Analysis of States’ APR Caps for a$10,000 Five-Year Installment Loan
examines the maximum APR, including both interest and fees, allowed in each state and the District of Columbia for a $10,000 five-year loan. The report finds that, for a $10,000 five-year loan, seven states (Alabama, California, Idaho, New Mexico, South Carolina, Utah, and Wisconsin) impose no numerical rate cap other than a prohibition of rates that shock the conscience, and the lending laws in Delaware, Missouri, North Dakota, Ohio, and Virginia impose no limit at all.

In comparison, for a $10,000 five-year loan, 39 jurisdictions have APR limits in place, at a median rate of 25%, protecting 236 million people.

“Our analysis shows a general consensus among the states that APR caps should be well below 36%for these larger, longer-term loans,” said National Consumer Law Center Deputy Director Carolyn Carter, the primary author of the report.

Key Recommendations for States

Limit APRs. An APR cap is the single most effective step states can implement to deter abusive lending—protecting consumers from excessive costs and giving lenders an incentive to ensure ability to repay. An APR cap of about 25% is at the high end of what is reasonable for larger, longer-term loans such as a $10,000 five-year loan, and represents the median among the 39 states that cap the APR for such a loan. States with caps of 25% or less should preserve their caps, states that have higher caps should reduce them, and states that do not have a numerical cap should impose one.

Ban or strictly limit junk fees for credit insurance and other add-on products. States should place strict limits on add-on products and should require their cost to be included in the APR cap.

Ensure that the consumer can afford to repay the loan. States should impose a duty on lenders to meaningfully evaluate whether the consumer can afford to repay the loan while covering other expenses without re-borrowing.

For the complete set of recommendations for states and additional materials, please visit: https://www.nclc.org/issues/a-larger-and-longer-debt-trap-installment-loan.html.
This report builds on NCLC’s extensive work on predatory lending. For more information, please visit:


The California Reinvestment Coalition drives changes in corporate, state, and federal practices and policies. We use member and community engagement, policy advocacy, and research to amplify voices of historically marginalized communities. We are building a fair and inclusive economy for all Californians.
CRC builds locally-held community wealth, strengthens family and household financial capability, and creates economic opportunity through fair and equitable development.

The Greenlining Institute advances economic opportunity and empowerment for people of color through advocacy, community and coalition building, research, and leadership development.

Since 1969, the nonprofit National Consumer Law Center® (NCLC®) has worked for consumer justice and economic security for low-income and other disadvantaged people, including older adults, in the U.S. through its expertise in policy analysis and advocacy, publications, litigation, expert witness services, and training. www.nclc.org

California Reinvestment Coalition: John Hoffman, jhoffman@calreinvest.org or (415) 864-3980
Greenlining Institute, Bruce Mirken, brucem@greenlining.org or (510) 926-4022
National Consumer Law Center: Stephen Rouzer, srouzer@nclc.org or (202) 595-7847