Strong
rules from Consumer Financial Protection Bureau needed to stop the debt trap
while Arizona Legislature should respect Prop 200 mandate and repeal title loan
law
PHOENIX,
AZ (January 26, 2016)—Today the Consumer Federation
of America (CFA) and the Southwest Center for Economic Integrity (CEI) released
a new report titled “Wrong Way: Wrecked by
Debt/Auto Title Lending in Arizona.” The report examines the
exponential growth of title lenders since Arizona’s law authorizing payday loans
expired in 2010 and documents the high risk to borrowers who secure loans with
the title to their vehicles, including repossession, deficiency balances,
balloon payment debt and collection costs.
Under the Arizona Secondary
Motor Vehicle Finance Transaction law, lenders are authorized to charge 204
percent for loans of $500 or less, with tiered rates for larger loans to 120
percent for loans over $5,000. These loans are renewed an average of eight
times, resulting in $765 in finance charges on a $500 loan for total repayment
of $1,265. For larger, longer-term loans, consumers pay thousands of dollars to
pay off loans and recover their titles.
“Five years after payday
lending sunset in Arizona, title lenders saturate our neighborhoods, selling
loans at up to 204 percent annual interest. Prop 200 voters in 2008 supported a
36 percent rate cap with no special carve-outs for payday lenders,” stated
Representative Debbie McCune Davis. “The Arizona legislature should honor that
voter mandate by repealing the triple-digit interest carve-out for title loans
and regulating everyone fairly under the Consumer Lender law.” McCune Davis
served as chair of the No on Prop 200 committee in 2008.
Arizona licensees offer two
loans under the title loan law, the traditional loan secured by a clear title as
well as “registration” loans made to consumers who do not own their vehicles.
Many lenders require borrowers to provide a blank check, debit card or
electronic access to their bank account in order to obtain loans, a key feature
of the now-expired payday loan regime.
“Consumer advocates warned
Arizona regulators that payday lenders would morph into title lenders to keep
making triple-digit interest loans,” noted Kelly Griffith, Executive Director of
the Southwest Center for Economic Integrity based in Tucson. “Sure enough,
title lenders are making registration loans with rates and terms very similar to
payday loans that voters thought had been removed from their neighborhoods,”
Griffith added.
Findings from the
report:
·
In
mid-2015, one hundred companies were licensed by the Arizona Department of
Financial Institutions to make title loans at 633 locations, a 300 percent
increase in less than a decade. There are more title lender locations than
there were payday lenders when payday lending in Arizona was outlawed in 2010.
·
Twenty
companies with almost half the licensed title loan locations also offer
“registration” loans at the same rates as title-secured loans. These loans are
similar to payday loans.
·
If Arizona
is typical of the other 24 states where title lending is legal, 190,000 to
285,000 consumers took out title loans last year. If Arizona is similar to
Virginia, a state that collects data on licensees, title lenders took in $316.5
million in revenue last year.
·
Title loans
are asset-based lending, based on the lender’s ability to collect rather than
the borrower’s ability to repay the loan while meeting other obligations.
Lenders tout “No Credit, No Problem,” and many do not conduct credit
checks.
·
Risks to
title loan borrowers include repossession of vehicles, deficiency judgments when
sale of repossessed property does not cover the amount owed plus costs, and
lawsuits when borrowers default and lenders sue. If Arizona repossession rates
are similar to those reported by Virginia regulators, it is likely that 25,320
borrowers lost their vehicles to repossession last year, based on 633
locations.
Recommendations
include:
·
Repeal of
the Secondary Motor Vehicle Finance Transaction law and regulation of all
lenders under the Consumer Lender law including the 36 percent annual interest
rate cap and stronger supervision and protections.
·
Strong
payday and car title loan rules by the Consumer Financial Protection Bureau to
require ability-to-repay determination for the first and every loan made by
title lenders.
·
Investigation and enforcement
of state and federal laws by the Arizona Attorney General, the Arizona
Department of Financial Institutions, CFPB and the Federal Trade
Commission.
“While action from the Arizona
legislature is necessary to protect Arizona consumers, the Consumer Financial
Protection Bureau must also issue a strong rule this year to stop the worst
abuses in the payday and title loans industry here and in other states,” stated
Jean Ann Fox, Consumer Federation of America. “Arizona consumers have waited
long enough for relief from debt trap lending at triple digit
rates.”
###
The Consumer Federation of
America is a national organization of more than 250 nonprofit consumer groups
that was founded in 1968 to advance the consumer interest through research,
advocacy and education. www.consumerfed.org
The Southwest Center for
Economic Integrity is a nonprofit organization based in Tucson, Arizona, founded
in 2001 with a mission to build economically strong communities for all and
oppose unfair corporate practices. CEI conducts research that illuminates the
practices and impacts of specific companies or industries in communities of
concern and acts as a facilitator for systemic economic change. www.economicintegrity.org
