Almost a decade after Arizona voters banned “payday loans,” the lending industry is trying to get its foot in the door with a new kind of high-interest consumer loan.
And they’re getting help from Republican lawmakers.
Legislation approved by the Senate Appropriations Committee would legalize what supporters have called a “consumer access line of credit,” which would provide revolving loans of up to $ 2,500.
But the most important provision of HB2496 is that it would allow lenders to charge what supporters call a “daily transaction fee” of 0.45% per day, a figure that equates to an annual percentage rate above 164. %. In contrast, state law caps interest on most other loans at just 36% per annum.
The 6-4 vote along party lines in the Republican-controlled committee sends the measure to the entire Senate. The House never considered the measure.
Senator Debbie Lesko, R-Peoria, said the elimination of payday loans has left a need.
“There are people who don’t have good credit,” she said, making it difficult for them to get money in an emergency, like making sure the power is off. not cut.
“They have no other options,” Lesko continued. “They don’t have a family here who can lend them money.
This is also the assessment of Michael Kerr, who is lobbying for Enova International, one of the companies seeking to offer these loans in Arizona.
He said about 850,000 Arizona residents have a credit score of 599 or less on a scale of 300 to 850, and they can’t get traditional loans at 36% interest or less.
“We believe this market is not adequately served,” he told lawmakers.
But Tucson lawyer Mary Judge Ryan said the wording of the bill belies Lesko and others’ claim that this type of loan is designed to help people facing emergencies. She pointed out that the measure itself indicates that the lender “is considering repeat non-commercial loans for personal, family or household purposes”.
Joshua Oehler of the Children’s Action Alliance said the legislation would create a “debt trap” for people who borrow the maximum of $ 2,500, continue to pay the minimum amount, and then borrow again as they go. were repaying the loan.
Ellen Katz of the William E. Morris Institute for Justice asked if there was really a need for this type of loan. She said the Arizona Department of Financial Institutions has 10 pages of businesses willing to lend money to Arizona residents under current interest limits.
But Sen. John Kavanagh, R-Fountain Hills, said it ignored the reality.
“These 36 percent loans don’t exist for people in these situations,” he said. “It’s a lifeline.”
Not everyone who voted for the bill was happy with it.
Senator Sylvia Allen, R-Snowflake, said she believes people should be able to make their own decisions and be responsible for their actions. She said that includes borrowing money.
But Allen has taken note of testimony from industry lobbyists, who have said they are offering these types of loans in other states for far less than the 164% they wish they could charge here. Allen has said she could oppose the measure when it reaches the full Senate, unless that cap is lowered.
Katz also pointed out something else.
In 2008, voters repealed by a margin of 3 to 2 an earlier exception to this 36% interest limit, which allowed what were officially called “deferred presentation” loans, but which ended up being called “payday loans“. The fee for the generally renewable two-week loans was 450 percent annual interest.
The industry closed in 2010.
“I think this should be remembered,” Katz told lawmakers.
Lesko, however, said it was better than these payday loans because lenders would be required to report the successful repayment to the credit bureaus. She said it would help people build a credit history so that they could eventually borrow from someone else, at a much lower rate.
Kathy Jorgensen of the Society of Saint Vincent de Paul called the current loan proposal “predatory.” Kavanagh, however, said he saw the plan as a smart way to get money.
For example, he said, a painter might need to borrow $ 1,000 for two weeks to complete a job. Kavanagh cited Kerr’s estimate that such a loan would cost $ 70, saying he considers it entirely reasonable under the circumstances.
But Senator Olivia Cajero Bedford, D-Tucson, said the business model of these lenders is not based on one-off loans, but rather on getting people to borrow money, to stay in debt. and making payments.
This is not the first time that lenders, with the help of Republican lawmakers, have attempted to secure a new exception to the 36% interest cap.
In 2015, a bill from Representative JD Mesnard, R-Chandler, sought to create “flexible loans”.
Technically, they would have lived within the 36 percent wear limit.
But lenders could have charged a range of fees for everything from managing account information to validating customer information, processing transactions and providing periodic billing statements.
And on a maximum loan authorized of $ 3,000, that could add up to $ 15 per day in fees on top of that 36% interest.
Last year’s proposal, sponsored by Kavanagh, would have allowed lenders to charge up to 15% per month – 17% if there is no collateral – on loans between $ 500 and $ 2,500 for periods of between 45 days and two years.
Both measures were rejected.
There was another objection raised Tuesday by some to what Lesko proposed: the process.
Rather than introduce a bill early in the session and have it go through the normal process, the lenders asked Lesko to graft the language onto a bill unrelated to homeowners associations. It’s not only more than two months since the Legislature began its annual session, but 72 days after what is supposed to be a 100-day session.
It also means that legislation, if approved by the Senate, will not be heard by a House committee. Lesko dismissed these concerns.
“I think there will be a lot of time for debate, especially since you report it,” she replied.