SB 1316 Expands Predatory Lending in AZ
With SB 1316, Out-of-State Payday Lenders Seek to undo Voters' Mandate with Latest "flex loan" Scheme
Millions of Arizona voters have rejected payday lenders’ push to enshrine their high-cost predatory loans in Arizona. By a 2 to 1 margin, Arizonans voted to keep payday lenders' and their triple digit interest rates out of the state. SB 1316 goes against the will of the people.
SB 1316 Harms Military, Veterans, and Their Families
According to the U.S. Department of Defense, predatory loans “undermine military readiness.” Today, financial issues are the number one reason members of the military lose their security clearances. High-cost predatory loans exacerbate these problems.
The Department has adopted new rules expanding coverage of the Military Lending Act to protect service members from debt trap loans like the ones created by SB 1316.
However, veterans are not and will not be covered by the Department’s rules against predatory lending. If these are dangerous loans for active duty military, they are certainly so for veterans facing reduced income, less stable job prospects, and other challenges in re-entering civilian life.
SB 1316 Flex Loans Facilitate Domestic Abuse
Economic and financial abuse are common tactics used by abusers to further gain power and control in a relationship. Domestic violence survivors are disproportionately at risk for predatory lending. Economically dependent survivors find it difficult to leave an unsafe relationship. More info from Arizona Coalition to End Sexual and Domestic Violence ...
SB 1316 Creates Debt Trap Loans (Just Like Payday Loans)
Payday lenders seek to weaken the Arizona Consumer Loan Act by proposing a carve-out from the interest and fees already permitted for loans under $3,000. Under existing law, loans up to $3,000 can carry 36%, plus a one-time loan origination fee of 5% up to $150. These loans can be secured or unsecured.
With this carve-out, permits triple digit interest rates – a 17 percent monthly interest rate for a $2,500 unsecured loan repaid over 24 months has a 204% APR and a 15 percent monthly interest rate for a $2,500 secured loan repaid over 24 months has a 180% APR. Payday lenders’ business model depends on repeatedly refinancing people into long-term debt. SB1316 does not change that.
These loans trap borrowers in long-term debt with little progress towards the outstanding amount borrowed – For an unsecured loan a borrower would still owe 87 percent of the original amount borrowed after making a year of payments.
The repayment plan allows lenders to charge interest for three months – The proposed repayment plan will not stop the debt trap. If a borrower is unable to repay a $2,500 loan after making two successful payments, they will accrue $2,083 in additional interest before they are eligible for a repayment plan.
Like payday loans, the Flex Loan Plan in SB 1316 will carry effective triple-digit APRs, can be made with no assessment of a borrower’s ability to repay, are designed to be rolled over again and again, and will result in thousands of dollars more in fees above the original loan amount.