Note: If you do not find help on this page, please consult our COVID-19 Resource List for Arizonans.

What to do?

Research shows that loans with triple-digit interest rates do not solve consumers’ cash shortfalls. Instead, these loans trap them in a cycle of debt, worsening their financial situation.

In the midst of this historic crisis, what can be done to curb the abuses of predatory high-cost, short-term loans? 

In addition to a federal bill to permanently cap loans at 36% APR, CEI and our allies support a bill that would at least temporarily cap loans at 36% APR. Times like these reveal why a 36% cap is in the best interests of consumers and the overall economy. A cap would help prevent unscrupulous lenders from taking advantage of this or any other crisis.

As with anything that must pass Congress and be signed by the President, a legislative fix to the predatory lending problem won’t happen overnight, and some households are already experiencing a cash crunch due to the COVID-19 crisis. Many more families see a cash crunch on the horizon or are at high-risk for a major loss of income in the near future due to job loss or due to having to close their small business.

Protect your “economic impact” (stimulus) payment

If you are one of the millions of people who have received stimulus payments or will soon receive another round of payments (also known as Economic Impact Payments or EIPs), there may be steps you can take to ensure you have the full benefit of those funds by protecting them from bank and credit union setoff if your account is overdrawn.

Take action to protect your Economic Impact Payment if your account is overdrawn | CFPB, March 17, 2021

Stimulus checks are already winding their way to millions of Americans. BUT, creditors and debt-collectors may view stimulus payments as an opportunity to seize money for amounts owed. With that in mind, here are the five best ways to avoid garnishment by debt collectors:

  1. Ask yourself these questions. Has your bank account been garnished before? Have you been served legal papers relating to a lawsuit that you failed to respond to? Did you ask your bank about any garnishments orders? How long do garnishment orders last?
  2. Know your state’s laws. Unfortunately, at the time of writing Arizona has NOT issued emergency orders in anticipation of the stimulus checks in an effort to stop all or some garnishment orders.
  3. Those receiving benefits have rights. A special strategy for those at risk of garnishment is available for recipients of Social Security, SSI, Veterans, or certain other federal benefits. A U.S. Treasury rule exempts from garnishment an amount in a bank account or direct express card equal to two months of federal benefit payments for that individual.
  4. Avoid garnishment with paper checks. Until the check is deposited into a consumer’s account, an attorney has some time to determine the risk of a garnishment order and to determine whether you are protected under state law. Or, simply cash the check without depositing it into your bank account.
  5. Redirect your stimulus payment. Direct the stimulus payment into a prepaid card or bank account at a smaller bank or credit union. Creditors are less likely to serve garnishment orders on smaller institutions. Prepaid cards are not exempt from garnishment, but most are issued by smaller institutions that are not on the radar screen of debt collectors.

Learn How to Open an Account at an FDIC-Insured Bank | Federal Deposit Insurance Corporation (FDIC), updated January 21, 2021.

Before seeking a loan

Obtaining a loan from a financial institution – even a high-cost installment, or auto title loan – may seem like a necessary evil under the circumstances, but a loan, while helping to meet short-term needs, may make a household’s financial crisis worse and make it last longer than if they took some different steps before and when seeking a loan.

  • If you can wait for your stimulus payment instead of obtaining a loan, you should. A loan is someone else’s money; the stimulus payment is yours.
  • Scammers are hard at work trying to steal consumers’ stimulus money. You should beware any text, call, or e-mail purporting to be about your stimulus payment.
  • Consumers should contact their (1) lenders, creditors, loan servicers, and (2) the companies to whom they make automatic recurring payments to request “coronavirus relief.” You should be prepared for potentially long hold times on calls.  You will be asked to explain your hardship. In some cases, the call is enough and no explanation is needed, but you should be prepared to provide more detail. These steps won’t put money in your pocket, but will potentially stave off bills needing immediate payment. This Forbes article, which is being continually updated, lists the banks that are offering hardship relief.

The CARES Act may help homeowners temporarily stop their mortgage payments, but you still have to contact the company to whom you send your mortgage payment to request it. The bank or mortgage company may have it set up so you can request “coronavirus relief” online. If not, you will have to call.

  • Consumers should seek assistance from friends and/or family. If ever there was a time to ask for help, now is it. Apart from giving cash, a friend or family member can help cover the cash crunch in other ways, such as by buying groceries and dropping it off at their loved one’s home.

Financially secure consumers should consider offering to Venmo, PayPal, or Zelle money to a friend or family member who is experiencing a financial hardship. Rather than just saying, “here’s some cash,” you can make the donation for a specific purpose, such as “here’s some cash to buy groceries today.” Doing it this way may make the friend or family member more likely to accept the assistance. 

When seeking a loan

If the above methods don’t stave off the need for immediate cash, consumers should do research to learn about low- or no-cost “crisis loans.”

Avoid any product that charges more than 36% APR

Any loan offered in connection with your anticipated stimulus payment, e.g., “Economic Stimulus Anticipation Loan,” is likely a RIPOFF

For consumers that do not have a bank account, now is the time to get one. Hardship relief will be paid electronically. The good news is that some banks have safe and affordable checking accounts called BankOn accounts that can be opened online, and consumers who have been denied checking accounts by banks due to financial issues can be approved for these accounts.

For consumers who have bank accounts, here are some steps to get started:

  • Call your bank or credit union or visit your financial institution’s website to find out whether they are offering loans specifically tailored to folks in a financial crisis due to COVID-19.[1] As mentioned above, this article, which is being continually updated, lists the banks that are offering hardship relief.
  • Find out about crisis-related loans offered by Community Development Financial Institutions (CDFIs). CDFIs make loans and investments to promote community development. Presently, these CDFIs in Arizona make consumer loans. In alphabetical order:
  • For consumers with credit cards, the credit card company may be offering cash advances on favorable terms for persons experiencing hardship. You should check the credit card’s website and/or contact the credit card company to find out.  Under normal circumstances, a credit card cash advance may have a high APR but one that is substantially lower than a vehicle registration or auto title loan.
  • Some nonbank, online lenders have better rates and terms than most storefront lenders. The lenders that are part of the Marketplace Lending Association adhere to responsible lending standards that include charging at or below 36% APR. Nerd Wallet has a function that allows consumers to compare loan products.

[1] Federal bank regulators have declared that banks will receive credit under the Community Reinvestment Act for making lower-cost loans to low- and moderate-income customers.

Last updated March 22, 2021

Acknowledgment: This page is based on a March 31, 2020 blog post by Brent Adams at the Woodstock Institute in Illinois.

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