You correctly title your July 18 editorial supporting pending legislation to deregulate retail credit in California "A Test for Credit Expansion." Unfortunately, the test has been conducted in other states and deregulation has failed the consumer miserably. As the director of the West Coast Regional Office of Consumers Union, nonprofit publisher of Consumer Reports, I say, why import that failure into California?
Californians owe an estimated $7.4 billion in retail credit debt. Current law limits the interest rate which may be charged to 18% for the first $1,000, and 12% for amounts over $1,000. SB 2592 awaiting final vote in the Assembly, would remove all ceilings for three years, deregulating retail credit in California. Conservative estimates are that the removal of the cap will cost California consumers an additional $150 million per year in interest charges.
When interest rates were extraordinarily high in the early 1980s, retailers argued that they needed higher rates to offset interest costs. Now, despite lower interest charges, retailers insist they still need higher interest rates.
Major retailers readily admit that they will raise their rates to 21% in California. They did so in New York and New Jersey after deregulation. The sky may be the limit for smaller retailers' interest rates. The Consumers League of New Jersey has copies of a New Jersey contract for a refrigerator sold on credit at 41.25% interest and other contracts at 30% interest.