Local advocacy groups call on Arizona legislators to fix lending laws

Daily Independent | By Brent Ruffner |

Some local advocacy groups are calling for support of proposed laws that would help to bar some fringe lenders from imposing hefty interest rates on short-term loans.

Officials from the Phoenix-based group Wildfire and the Center for Economic Integrity say proposed national legislation could halt triple-digit interest rates that get passed onto consumers on short-term loans such as advances given in exchange for a car titles.

New laws could block companies similar to title loan firms from charging more than state interest rate caps allow. Lawmakers could use the Congressional Review Act to reverse current rules regarding high short-term loan interest rates.

In the past, companies typically have evaded rate caps by putting out-of-state banks on the loan paperwork, opponents of fringe lenders claim.

Last month, U.S. Sens. Chris Van Hollen, D-Maryland, Sherrod Brown, D-Ohio, and Congressman Chuy García, D-Illinois, introduced the resolution.

“Arizona law caps the annual interest rate on a $2,000, 2-year loan at 41%,” said Wildfire Executive Director Cynthia Zwick. “But several high-cost online installment lenders are offering loans in Arizona at rates up to 160% or higher by putting an obscure bank’s name on the loan agreement.
“There is no other way to define or describe that than as a pure, appalling example of predatory lending,” Ms. Zwick said.

Arizona has a cap on some high-interest loans in part after voters rejected in 2008 an measure that would have allowed payday lenders to continue operating in the state beyond 2010.

Ms. Zwick said high rates make it tough for low-income families to pay back short-term loans. She said many of the lower income families may not have access to credit, and aggressive marketing tactics make the short-term loans enticing.

High-interest lending in a variety of arenas is a regular fixture for Arizona borrowers, but not all have operated legitimately.

In 2020, the Arizona Attorney General announced a settlement with Texas-based Santander Consumer USA Inc., one of the nation’s largest subprime auto lenders. The settlement gave more than 12,000 Arizona car buyers millions of dollars in financial relief following allegations that Santander violated consumer protection laws by giving high-interest loans to car buyers it knew could not afford them.

The announcement said Arizona consumers would receive between $22.7 million and $41.5 million of relief through restitution checks, in-kind relief, or debt forgiveness.

Kelly Griffith, executive director of the Center for Economic Integrity in Tucson, said her nonprofit group helps consumers on various issues. She said the group believes Arizona’s consumer lending laws need to change.

“It basically says this is wrong,” Ms. Griffith said. “You are undercutting the states.”

Advocates of the current laws say short-term borrowing methods have been essential, especially since the start of the pandemic.

According to published reports, Checkmate CEO Jennifer Robertson said short-term loans are handy for those who might not have a bank account. She said one in four Arizona residents don’t “hold depository accounts at traditional financial institutions,” according to a 2017 FDIC annual report.

In published reports, Ms. Robertson said check cashing is essential to communities during rough economic times.

“We deliver liquidity into our communities through a variety of services, including check cashing, wire services and provisioning small loans, all regulated according to federal laws and state-specific statutes that in many cases, cap our fees,” Ms. Robertson said in the report.

James McGuffin, spokesman for the Arizona Department of Insurance and Financial Institutions, said officials cannot comment on any proposed legislation.

The Arizona Department of Insurance and Financial Institutions enforces financial institution and insurance laws to help protect consumers against any type of fraud.

“We don’t want to get into the middle of that,” Mr. McGuffin said. “We are here to enforce whatever the state legislature puts on the books.”

Ms. Griffith said legislators need to take action in order to protect consumers.

“It’s necessary if we are going to protect the lending laws in this state.”

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