A Test for Credit Expansion

Legislation to lift the ceiling on retail credit interest rates in California for a three-year test period will go to the Assembly floor next month for a final vote. We think that it should be approved.

The measure, SB 2592 by Sen. Ralph C. Dills (D-Gardena), follows in general the decisions of 16 other states, including New York, to lift ceilings on such interest. The results reported from those states indicate that decontrol has worked well and, in at least some cases, has served to make credit available to a larger number of people.

California has no ceiling on interest charged by credit-card operators, banks and other lending institutions. But retail credit interest is limited to 18% on the first $1,000 and 12% on the balance. The ceiling has contributed to substantial losses for major retailers in their credit operations. The retailers report that even under decontrol they expect to continue to offer credit at less than actual cost but would narrow the losses by raising rates. In New York the average current rate is 21%.

Opponents of the proposal say that there are risks. Decontrol may narrow rather than widen access to credit among low-income persons, although that has not been the experience, for example, in New Jersey, where the state has monitored and evaluated decontrol. Decontrol may invite exploitation of some consumers by marginal retail operations, but the disclosure regulations would remain in place, providing full information for purchasers.

We have concluded that decontrol would be more likely to expand the availability of credit than to contract it, and that therefore the legislation should be passed--authorizing the three-year test, to be carefully monitored and fully evaluated.