High-interest lenders have circumvented an Arizona ban on payday loans by migrating to auto title loans, including those where borrowers do not own their vehicles, a critical study of the practice has found.
More than a third of the companies that now provide high-cost vehicle loans here were licensed as payday lenders more than a decade ago, when the Arizonans voted to ban payday lending, the Tucson’s Center for Economic Integrity in a report released in August. 5.
Focused on low-income borrowers
The Tucson Group is critical of loans it says can keep consumers in a cycle of debt as they attempt to pay off bonds that could carry annualized interest rates of up to 204%. Clients tend to be low-income and frequently include racial minorities, the report adds.
“We’re usually talking about a mother with two children, often a Latina,” said Kelly Griffith, one of the report’s co-authors. “It’s a demographic that is generally struggling.”
The center supports the passage of the Arizona Fair Lending Act, which would reduce high-interest loans. Supporters are trying to collect the 237,000 signatures needed to register the measure on the November 2020 ballot.
Arizona residents pay nearly $ 255 million a year in interest charges on auto loans, the report said, citing information from the Center for Responsible Lending.
In Arizona, 73 companies operating in 476 licensed locations provide loans, which can be extended to consumers who own their vehicle as well as others who do not have a clear title.
Several auto title companies declined to comment for this article, but a spokesperson for a financial trade group said the companies are helping people who may not have access to traditional loans for auto repairs or other emergencies. .
“There is a huge need in Arizona for some form of short-term alternative financing to address credit challenges,” said Matthew Benson, spokesperson for the Arizona Financial Choice Association. “What these families need are choices in a competitive and well-regulated short-term finance market.”
Benson said the proposed voting measure is “bought and paid for by elites on the east coast who have no employees in this state.” The ban on auto title lending, he said, could push the Arizonans to seek help from underground lenders.
Increase in registration loans
Loans made without a clear title, called “registration” loans, are really just “disguised payday loans,” Griffith said in an interview.
These are typically small, high-interest IOUs secured by bank accounts, with payments often scheduled on paydays. Logging into the bank account makes borrowers vulnerable to unauthorized withdrawals, overdraft fees or insufficient funds charges, according to the report.
The number of businesses offering registration loans has grown by a quarter over the past three years, Griffith said.
Many Arizonans are confused that these types of transactions are still permitted after the passage of Proposition 2000 in 2008. This measure prohibits payday loans.
“A lot of people thought this was already settled,” Griffith said. “They ask why we are still having this conversation.”
Arizona allows annual interest rates of up to 204% on loans of $ 500 or less, according to the report. Often times, this is because unpaid loan balances are converted into new loans.
The largest auto title lender in Arizona is TitleMax / TitleBucks, followed by ACE Cash Express and Fast Auto Loans, according to the report, noting that most of these lenders are headquartered in other states.
“These businesses are not a boon to the local economy,” Griffith said. “They are economic exporters.”
The report “Still Wrong: Wrecked by Debt / Title Lending in Arizona 2019” is an update of a study carried out in 2016.
Contact the reporter at [email protected] or 602-444-8616.