While Arizona recovers from an economic crisis rooted in predatory lending practices, a bill before the legislature proposes another round of risky loans not too far removed from the horrific payday-lending loans now mostly a good-riddance memory.
HB 2526 would increase interest rates and fees on consumer loans of $3,000 up to 36% and double loan-origination fees from $75 to $150, a troubling proposition leaving Arizonans footing the bill for consequences of high-cost debt while benefiting primarily out-of-state lenders.
HB 2526 essentially allows the loans without regard to a borrower’s ability to repay. And, as if fees and interest weren’t enough, these loans come stacked with more fees for nearly useless insurance products providing little to no benefit to borrowers.
It‘s easy to see how a loan pitched as a productive quick fix is actually designed to sink borrowers into inescapable high-cost debt through a despicable cycle of refinancing and flipping.
The proof is in the lenders’ own data. Companies making these types of loans report that more than 70% of these loans have been refinanced from existing loans. This tell-tale sign of predatory lending – flipping borrowers over and over to collect new fees – became all too familiar during the mortgage crisis.
This is also an obvious sign that these high-cost consumer loans are not structured to be affordable, even at the outset. Nor do they encourage borrowers to graduate to cheaper forms of credit or other means of addressing financial stress. Instead, once lenders make the first loan based on these unsustainable terms, the result is typically a long-term debt cycle making it virtually impossible to build assets for the long term.
In addition to high costs and churning, equally troubling is that these loans will likely be bundled and sold right back to Wall Street.
Finally, while bill supporters assert that expanding this type of unsafe lending will curb abusive car-title loans, adding another predatory product to neighborhoods already saturated with similar no-out options is not the answer.
If the legislature wants to address car-title-loan abuses, then do it directly and we’ll stand behind and support those efforts.
But making weak excuses to deflect focus from a bill that would allow predatory lenders to push already-struggling Arizonans deeper into debt is, at the very least, insincere.
For these reasons, AARP, the Center for Economic Integrity and Community Action Agencies, which provide support and services to the newly poor and the working poor, along with many other groups urge Arizona legislators to prevent predatory lending by opposing HB 2526.
Cynthia Zwick is executive director of the Arizona Community Action Association. For more information, visit www.azcaa.org.