California has enacted a a law that lets nonprofit organizations targeting low-income borrowers lend as much as $2,500 interest free without a license. The law will allow more Californians to skip more risky payday loans and create the track record they need to qualify for regular loans.

California broadened the reach of nonprofits that target low-income borrowers who lack the credit standing needed to obtain a traditional loan, enacting a law that lets the organizations lend as much as $2,500 interest free without a license.

Clients of groups like the San Francisco-based Mission Asset Fund are often unbanked, underbanked or have low credit scores. Under the new law, payments must be reported to companies that create the rankings, such as Experian and Equifax. By repaying in full and on time, borrowers can create the track record they need to qualify for regular loans.

A few nonprofit groups around the U.S. provide low- or no-interest micro loans to people whose financial options are limited and may otherwise turn to payday lenders, leading to a mire of mounting debt at exorbitant rates. The U.S. Consumer Financial Protection Bureau estimates 12 million Americans use payday lenders and says most get trapped into rolling over a two-week loan at least once before paying it off at annualized interest rates that can surpass 400%.

Read the rest at CSMonitor.com