New Push to Outlaw Title Loans in Arizona

Title loans continue to be debated in Arizona as groups lobby against the industry and the state legislature once again balances regulations with the idea of a free market.

An attempt was made by consumer groups in 2019 to outlaw title loan dealers. The battle hit a climax when legal papers were filed to put an initiative called the Arizona Fair Lending Act on the ballot to remove title loan companies’ exemption from state laws regarding interest limits.

The proposal hit hard on interest rate limits and other regulations, seeking to put title loan companies in line with other types of traditional lenders. The title loan industry fought back with a well-financed, orchestrated campaign against the new restrictions.

The History

The consumer lobbying group wanted title loan companies to be limited as other lenders are to 36 percent in interest charged annually. At the time, title loans could carry a 204 percent annual percentage rate because they were exempt from limitations.

However, those representing the title loan industry said that number was misleading because the state had laws requiring them to use a tiered interest rate system.

Those supporting the initiative said title loans are predatory loans because those who use them often don’t have the income to meet even basic living needs, much less be able to pay back a title loan.

Stuart Goodman, a lobbyist for The Arizona Title Loan Association, said the industry meets a need because its customers are high-risk borrowers who often don’t have relationships with banks. They have a short-term emergency need and aren’t served by traditional lenders because of bad credit.

Initiative Failed

The initiative’s backers were Arizonans for Fair Lending, who filed for it to go on the 2020 ballot on May 15, 2019. However, the initiative was doomed by February 2020, when the group’s consultant Rodd McLeod said the committee couldn’t raise the money for the ballot campaign. 

The effort for the ballot initiative officially failed in 2020 after the group did not get enough signatures by the July 2, 2020 deadline to put it on the Nov. 3 ballot. Supporters needed 237, 645 valid signatures.

Arizona Statutes

Arizona has statutes limiting interest legally charged on title loans under Arizona law 44-291(G) ARS. The law outlines exactly what title loan companies can charge depending on the amount of the loan. 

  • Those borrowing less than $500 will pay up to a maximum monthly finance rate of 17 percent while the maximum rate is 15 percent for loans falling between $500 and $2,500. 
  • The maximum rate for loans between $2,500 and $5,000 is 13 percent while any title loans over $5,000 have a maximum rate of 10 percent interest. 

Arizona law stipulates what is in your loan agreement as well. According to 44-287 ARS, the agreement must include the name of the buyer, seller, a vehicle description, and your annual and monthly financing rate.

Other parts of the law state that borrowers can request written statements from the lender showing payments required and due dates. Borrowers also have the right to receive written receipts for cash payments. 

Ending Payday Loans

Similar groups were successful in ending what is known as “payday loans” in Arizona in 2008. Those loans would allow people to borrow small amounts, with a maximum of $500, for two weeks but charged interest upwards of 400 percent. 

The title loan industry in Arizona boomed with the business after new customers flooded it in the aftermath of the destruction of the payday loan industry, according to the Consumer Federation of America and the Center for Economic Integrity.

Many of those in the payday loan industry moved over into offering registration loans and title loans instead since the laws didn’t ban those types of businesses. It became legally confusing because Arizona laws also allowed borrowers to take out money against a vehicle they didn’t own, according to one study.

The Center for Economic Integrity, based in Tucson, released a report stating more than a third of title loan companies in Arizona were previously payday loan lenders when it was legal. 

The problem, according to consumer groups, is that low-income borrowers are the customers targeted by these companies and they end up bogged down in debt as they pay on the high interest. Many of those are minorities who are struggling to meet their family’s needs, according to the claims.

Those supporting tougher measures against title loans said these types of loans create worse hardships for people than simply needing money for an emergency. Some claim such loans put people into bankruptcy forces them to close checking accounts and leads to addictions. 

However, none of the consumer lobbyists offered statistics to prove their claims.

That was when proposals began cropping up in the Republican-controlled legislature to limit interest on title loans, but those failed over several years prompting the voter initiative. 

While the newest laws limit interest and put advocacy rules in place on agreements, consumer groups still seek to further limit or abolish the title loan industry altogether.

The Alternatives

Goodman said ending the title loan industry would be a mistake as it would drive people looking for short-term help to the internet to get loans. Internet loan companies aren’t necessarily governed by Arizona statutes as title loan businesses in the state are, he said. 

He said consumers are safeguarded when loan companies are required to follow Arizona statutes.

The Arizona Department of Insurance and Financial Institutions licenses title loan businesses in Arizona. They don’t license those outside the state.

Kelly Griffith, representing the Southwest Center for Economic Integrity that supported the Arizona Fair Lending Act, said there are better solutions for the poorest of Arizonans than title loans. 

Among her suggestions were that they could use credit cards for emergencies like car repairs to keep working because those interest rates were lower than those of a title loan lender. 

She also said there were charities to help those who didn’t have credit cards. 

Conclusion

Title loan companies in Arizona continue to offer services to people in an emergency need as they are the only legal quick loan option available in the state.

While the state continues to battle out issues regarding title loans, customers remain free to seek out these companies for quick funding. 

Be aware of all aspects of getting a title loan, including all the insurance and other requirements by the loan company. Experts advise to know and understand the interest charged over the entire term of the loan and read the contract thoroughly before signing. Also, have a plan to pay off the loan as quickly as possible to avoid paying more interest.

Adam Hansen