Griffith, Zwick: Triple-digit interest rate title loans more dangerous during the COVID-19 pandemic


As Arizona’s working families struggle to maintain employment and reliable sources of income in a historically disastrous economy, the last thing they need is a predatory debt trap making things worse.

A title lender recently claimed that their business is essential: charging triple-digit interest on loans that trap people in debt at risk of losing the vehicles they depend on. This is an insult to those families who are most at risk for the health impact of COVID-19 as well as the financial devastation.

Arizona voters sent a clear message in 2008 that payday lenders were not welcome to continue charging vulnerable consumers outrageous interest rates up to 391%. Voters rejected a payday industry sponsored ballot measure by a 3-to-2 margin that eventually resulted in the state capping payday lending interest rates at 36%.

And recent polling indicates that Arizona voters, irrespective of political party, soundly oppose these predatory practices . Seventy percent of Arizona voters support a 36% interest rate cap. Eight in 10 Americans (81%) support prohibiting all high-interest loans during the coronavirus crisis, including over half (56%) who do so strongly.

Even while the recent surge in COVID-19 cases demonstrates that the virus knows no bounds on who it affects, it has become evident that this virus is disproportionately impacting communities of color. So too does predatory lending. In states where payday lending is legal, stores are heavily concentrated in Black and Latino communities, stripping valuable wealth from places that are already struggling.

Car title loan stores follow the same model. A 2018 mapping of car title lending locations by the Center for Economic Integrity in Tucson found that the high-cost lenders are much more likely to be located in low income neighborhoods of color. In Arizona alone, these predatory lenders drain $255 million annually from our most vulnerable neighbors.

In a pandemic, championing this legalized loan sharking sets people of color up for an economic disaster on top of the worse health outcomes they are already facing.

As a society, we have a responsibility to be aware of just how devastating title lending can be to individuals, families and communities of color who are most often the target of unscrupulous lenders. Slick TV ads and billboards aside, a triple-digit interest rate small loan does not offer relief from financial difficulty. These types of loans take a precarious financial situation and turn it into an absolute disaster.

Car title lenders continue to file collection cases against their borrowers despite the emergency declared by Gov. Ducey March 11. On just one day last week (July 15) Checkmate Express filed 15 new cases against borrowers in Maricopa County Justice Court, an indication that these loans are unaffordable and that borrowers are in trouble. The effects of high cost small loan lending creates further harm and broadens the health and wealth gaps, especially now during a pandemic.

Title loans are predatory and designed so that the borrower is trapped in an unending cycle of debt. The Consumer Financial Protection Bureau found that one in five borrowers have their vehicles repossessed and two-thirds of lenders’ volume comes from borrowers stuck in seven or more loans.

The majority of title lending companies in Arizona are regional or national chains, not family businesses. At least 18 licensed title lenders are headquartered outside Arizona, accounting for 25% of companies and 59% of the licensed locations offering loans in Arizona.

There are at least six out-of-state licensed companies offering loans online without providing physical locations in Arizona with the complete transaction handled electronically. In some cases, consumers apply for loans online, transmit documents, then close loans with local agents.

Now more than ever consumers need to be protected from these largely out-of-state financial predators, so that legitimate small loan lenders who do follow Arizona’s small consumer loan cap of 36% APR or less can step up in a level, fair market place.

Individuals and families do not need access to predatory products. What we need is for the state to take up the issue of unemployment insurance, access to food, medical care, broadband, telehealth and other pressing economic issues. And we need to strengthen consumer protections to guard against exploitation including repealing the statutory carve-out that allows triple-digit interest rate car title loans. This is the role of government during a crisis.

Arizonans are resourceful, resilient and capable of navigating pretty much anything. Lending schemes that prey on people when they are at their most vulnerable under the guise of being helpful during a pandemic is a bit like a wolf parading about in sheep’s clothing. Only those who stand to profit go along with the ruse. The rest of Arizona’s voters see it for what it is --- usury.

Editor's note: Kelly Griffith is the executive director of Arizona Center for Economic Integrity and Cynthia Zwick is the executive director of Wildfire.

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