Payday lenders migrate to auto-title loans
Report: High rates and low incomes
High-interest lenders have circumvented an Arizona ban on payday loans by migrating to auto-title loans, including those where borrowers don’t own their vehicles, a study critical of the practice has found.
More than one-third of companies now providing high-cost loans on vehicles here were licensed as payday lenders more than a decade ago, when Arizonans voted to ban payday lending, said the Tucson-based Center for Economic Integrity in a report released Aug. 5.
Focused on low-income borrowers
The Tucson group is critical of loans that it says can keep consumers mired in a cycle of debt as they try to pay off obligations that could carry annualized interest rates of up to 204%. Customers tend to be lower income and frequently include racial minorities, the report added.
“Who we’re typically talking about is a mom with two kids, often a Latina,” said Kelly Griffith, one of the report’s coauthors. “It’s a demographic group that’s typically struggling.”
The center favors passage of the Arizona Fair Lending Act, which would curb the high interest loans. Supporters are trying to collect the 237,000 signatures needed to put the measure on the November 2020 ballot.
Arizonans pay nearly $255 million annually in interest charges on auto-title loans, said the report, citing information from the Center for Responsible Lending.
In Arizona, 73 companies operating at 476 licensed locations make the loans, which can be extended to consumers who own their vehicles as well as others who don’t hold a clear title.
Several auto-title companies declined to comment for this article, but a spokesman for a trade group said the firms help people who might lack access to traditional loans for car repairs or other emergencies.
“There’s a tremendous need in Arizona for some form of short-term, alternative financing to meet credit challenges,” said Matthew Benson, a spokesman for the Arizona Financial Choice Association. “What these families need are choices through a competitive and well-regulated market of short-term financing.”
Benson said the proposed ballot measure is being “bought and paid for by East Coast elites who have zero employees in this state.” Banning auto-title loans, he said, could push Arizonans to seek help from underground lenders.
Rise of registration loans
Loans made without clear titles, called “registration” loans, are really just “payday loans in disguise,” Griffith said in an interview.
These tend to be small dollar, high interest IOUs secured by bank accounts, with payments often scheduled on paydays. The bank-account connection makes borrowers vulnerable to unauthorized withdrawals, overdraft charges or fees for having insufficient funds, the report said.
The number of companies offering registration loans has risen by a quarter over the past three years, Griffith said.
Many Arizonans are confused that these types of transactions are still allowed after passage of Proposition 2000 in 2008. That measure banned payday loans.
“A lot of people thought this was already taken care of,” said Griffith. “They’re asking why we’re still having this conversation.”
Arizona allows annual interest rates of up to 204% on loans of $500 or less, the report said. Often, that’s because unpaid loan balances get rolled over into new loans.
The largest auto-title lender in Arizona is TitleMax/TitleBucks, followed by ACE Cash Express and Fast Auto Loans, the report said, noting that most of these lenders are headquartered in other states.
“These companies are not a boon for the local economy,” Griffith said. “These are economic exporters.”
The report, “Still Wrong: Wrecked by Debt/Title Lending in Arizona 2019,” is an update to a study made in 2016. Reach the reporter at 602-444-8616 russ.wiles@arizonarepublic.com.