In 2008, Arizona voters overwhelmingly endorsed Proposition 200, which banned the practice of providing short-term, high-interest loans known as payday lending. But according to a report released this month by the Center for Economic Integrity in Tucson, payday lenders have since got around the ban by migrating to another form of lending, auto title loans.
There are 73 companies offering auto title loans in the state to individuals who own their vehicles as well as those who don’t. Over a third of the companies were licensed as payday lenders prior to the passage of Prop. 200.
The loans tend to be small dollar with annual interest rates of up to 204 percent and are secured by bank accounts, making the borrowers vulnerable to overdraft charges and fees for insufficient funds. The loans are generally taken out by individuals with lower incomes who are often racial minorities.
Kelly Griffith, one of the co-authors of the report on auto title lending said the loans made to those who don’t own their cars, known as “registration” loans, are merely “payday loans in disguise.”
The report concludes with a recommendation to support a proposed November 2020 ballot measure, the Arizona Fair Lending Act, which would ban auto title loans.
But Matthew Benson, a spokesman for the Arizona Financial Choice Association, said, “There’s a tremendous need in Arizona for some form of short-term, alternative financing to meet credit challenges.”
He also said the ballot measure is being “bought and paid for by East Coast elites who have zero employees in this state,” and banning auto-title loans could force Arizonans to turn to illicit lenders.
But the auto title lending report points out that most of the companies providing such loans are headquartered in states other than Arizona.
“These companies are not a boon for the local economy,” said Griffith. “These are economic exporters.”
And she said with the passage of Prop. 200, “A lot of people thought this was already taken care of.”
“They’re asking why we’re still having this conversation.” (ARIZONA REPUBLIC [PHOENIX], CENTER FOR ECONOMIC INTEGRITY)