Can consumers really repay their payday loans?
High rates can create a debt trap for consumers struggling to pay bills and take out payday loans.
High-interest lenders have circumvented an Arizona ban on payday loans by migrating to self-title loans, including those where borrowers don’t own their vehicles, a study critical of the practice has found. .
More than a third of the companies now offering high-cost vehicle loans here were licensed as payday lenders more than a decade ago when Arizonans voted to ban payday loans , the Tucson-based Center for Economic Integrity said in a report released in August. 5.
Focused on low-income borrowers
The Tucson Group is critical of loans that it says can keep consumers mired in a cycle of debt as they attempt to repay obligations that can carry annualized interest rates of up to 204%. Customers tend to be low-income and often include racial minorities, the report adds.
“What we typically talk about is a mother with two children, often a Latina,” said Kelly Griffith, one of the report’s co-authors. “It’s a demographic that’s generally struggling.”
The center favors passage of the Arizona Fair Lending Act, which would limit high-interest loans. Supporters are trying to collect the 237,000 signatures needed to put the measure on the November 2020 ballot.
Arizona residents pay nearly $255 million a year in interest charges on auto-title loans, the report said, citing information from the Center for Responsible Lending.
In Arizona, 73 companies operating in 476 approved locations provide loans, which can be extended to consumers who own their vehicles as well as others who do not hold clear title.
Several auto title companies declined to comment for this article, but a spokesperson for a financial trade group said the companies were helping people who may not have access to traditional loans for car 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 through a competitive and well-regulated market for short-term financing.”
Benson said the proposed ballot measure is “bought and paid for by East Coast elites who have no employees in this state.” Banning self-title loans, he said, could cause Arizonans to seek help from underground lenders.
Rise in recording loans
Loans made without a clear title, called “record” loans, are really just “payday loans in disguise,” Griffith said in an interview.
These are usually small, high-interest IOUs, secured by bank accounts, with payments often scheduled on paydays. Connecting to the bank account makes borrowers vulnerable to unauthorized withdrawals, overdraft fees or NSF charges, according to the report.
The number of companies offering record loans has increased by a quarter over the past three years, Griffith said.
Many Arizonans are confused that these types of transactions are still allowed after the passage of Proposition 2000 in 2008. This measure prohibits payday loans.
“A lot of people thought it was already taken care of,” 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 this is because outstanding loan balances are transferred into new loans.
The largest auto title lender in Arizona is TitleMax/TitleBucks, followed by ACE Cash Express and Fast Auto Loans, the report said, 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 2016 study.
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