Initiative effort seeks to put tighter restrictions on title loans
PHOENIX — Saying the rates they charge amount to usury, backers of a new initiative seek to outlaw title loans — or at least the interest they are allowed to charge.
Legal papers filed late Wednesday ask voters to remove the exemption that the industry now has from state laws which limit allowable interest to no more than 36 percent a year. Current title loans can carry an annual percentage rate up to 204 percent a year.
Backers need 237,645 valid signatures by July 2, 2020 to put the issue on the general election ballot that year.
The move is being pushed by many of the same organizations who were successful nearly a decade ago in wiping out so-called “payday loans” where people could borrow up to $500 for two-week periods -- at effective interest rates that could exceed 400 percent. That, however, left the option for people who own their vehicles to borrow against it.
But Kelly Griffith of the Southwest Center for Economic Integrity, one of the groups behind the initiative, said the industry has stretched the law to the point where people don’t even need to have clear title to their vehicles.
“They’re exploiting that loophole,” she said, lending money to those who cannot afford to repay and therefore have to keep taking out new loans. “It’s another name for payday loans.’’
In 2008 voters decided to kill off the payday loan industry despite lenders spending more than $17 million to keep it alive. Since that time the Consumer Federation of America and the Center for Economic Integrity released a report showing that the title lending industry has exploded in Arizona.
There have been several legislative proposals to rein in the industry and cap the allowable interest at 36 percent.
Each of those has fallen short in the Republican-controlled Legislature. That leaves foes of the industry the option of taking their case directly to voters.
The initiative is likely to get a fight from the industry which has argued that it provides an option for people do not not have access to easy credit at regular interest rates -- meaning below that 36 percent APR.
“Our customers are individuals that can’t get those rates,” said Stuart Goodman who lobbies for the Arizona Title Loan Association, saying most have no relationships with banks.
“We’re dealing with high-risk individuals with bad credit that have some sort of instant short-term credit need,” he said. “They’re not being served by the traditional banking community because of the risk associated.’’
But Griffith said she believes the industry effectively encourages people to borrow.
“If you do not have enough income to meet your basic cash flow needs, whatever those are ... what are the chances you’re going to be able to pay that loan back?” she asked.
“It drives people to bankruptcy, to closing checking accounts, to addictions,” Griffith said. “So the consequences are huge.’’
Goodman, however, said wiping out title lenders in Arizona won’t solve the problem. He said that will just drive people to Internet and off-shore lenders, people who have no physical presence in Arizona and whose practices are not overseen by state regulators.
But Griffith said she thinks that there are other solutions.
She said some probably have access to credit cards where they can charge for things like car repairs and tires, the things that someone might need to get to work to keep earning money. And Griffith said the interest rates on those are less than from a title lender.
And for those without such options, Griffith said there are charities that may be able to help.
Goodman said that 204 percent figure can be misleading.
That number is based on the industry being allowed to charge interest of 17 percent a month for loans of $500 or less. But he said the law has tiered caps: 15 percent for those in the $501 to $2,500 range, 13 percent for those from $2,501 to $5,000, and 10 percent for loans above that. And he said that competition among lenders has resulted in some offering rates below that.
Griffith said the move has the backing of several community organizations who will help raise the money necessary to get the measure on the ballot. And some have experience in this area, including Living United for Change in Arizona which was a prime mover behind the successful 2016 initiative to increase the state’s minimum wage.