Payday lenders in Arizona are reviewing creative methods to remain in business after the June 30 ban of the payday loan industry.
2015 Arizona Payday Loan Legislation Update.
PHOENIX (AP) - A Republican dominated House committee has approved new payday loan legislation enabling a new type of consumer loan.
House Bill 2611 came was approved for Arizona Lenders.
Republican Rep. J.D. Mesnard described his bill as allowing “flex loans.” "Flex loans" enable consumers under financial stress and having poor credit to qualify for small loans to meet essential needs. "Flex loans" are not payday loans. Still, because of high default rates by users of "flex loans" and expensive underwriting costs, "flex loans" do carry high interest rates and should be used with caution.
Payday loan lending businesses are now prohibited from operating in the state and, as a result, many Arizona payday loan lenders are considering converting to car title or auto-title loans and check cashing operations, which appears to be legal under Arizona law. Payday loan lawyers and compliance expertsare researching these business models now.
Our clients and others are weighing the advantages and feasibility of switching to car title or auto title loans in order to continue to serve their customers. Demand for simple, no-hassle, minimum documentation micro-lending products remains huge! Unfortuately, Arizona Regulators fail to realize this demand. So, the Regulators simply outlawed payday loans leaving thousands of Arizonan's without access to $300 to $1500 loans. Check cashing services have also grown amid tighter state regulations.
A lender can charge about 200 percent on a car title loan and operators representing about half the payday stores in the state have applied for a license to make these loans.
Another approach being used by Arizona payday loan operators is to offer prepaid cards that include an overdraft feature that allows customers to borrow against money they don't yet have -- at rates equal to a payday loan.
The payday loan industry faces increased regulations from many states. Payday loan lenders narrowly escaped the financial regulatory reform bill, which would have required federal oversight of the payday loan industry. Millions of consumers through out the country welcomed this development as their ability to choose the payday loan product to solve short-term financial problems is a high priority.
Legal Status: Effective June 30, 2010 no longer legal
Ariz. Rev. Stat. § 6-1251 et seq.
Maximum Loan Amount: $500
Loan Term: Min: 5 days
Maximum Finance Rate and Fees: 15% of check
Finance Charge for 14-day $100 loan: $17.65
APR for 14-day $100 loan: 459%
Maximum Number of Outstanding Loans at One Time: One
Rollovers Permitted: Three (extensions)
Collection Fees: $25 NSF fee + actual charges assessed by the financial institution
Criminal Action: Prohibited
Arizonans for Financial Reform hopes to teach people about the loans, who uses them and why they are a responsible form of lending, says Lee Miller, who represents the Arizona Consumer Financial Services Association, a payday loan trade group.
"We have come to understand that the biggest challenge the payday industry faces in trying to establish its niche in the marketplace is the vast majority of people out there will never be our customers," he said. "[They] know nothing about us, and what they do know, they picked up through the media, which is never a positive message".
"A byproduct of understanding why the industry exists...is coming to the conclusion, "I guess it is appropriate for you guys to exist".
In the meantime, Miller says payday lenders are committed to reforming the industry through the legislative process. To that end, he says the likely starting point would be the core provisions of a bill last session that died when the Senate and House couldn't agree on amendments.
Among other things, that legislation would have eliminated so-called "rollovers" of loans, in which a borrower extends the loan for another two weeks, but pays an additional 15-percent fee. State law currently allows three such "rollovers. " Instead, the bill allowed borrowers to enter into a 90-day fee-free repayment plan.
Current law allows borrowers to use up to three "rollovers" per loan.
Miller says the regulations the industry agreed to last year would address the two chief complaints payday loan critics have: that borrowers are compelled to use "rollovers" to extend the loan and that borrowers take out multiple loans at one time.
The best option for Arizonans, Miller says, is to have a regulated industry that exists in brick-and-mortar form within the state. If McClure's initiative is approved, he said, then people will turn to Internet payday loan sites - many run by off-shore companies - that are not subject to Arizona's laws.
"If you think it's going to have an effect on those [companies], I want to be the guy whose job it is to patrol the Caribbean looking for those people," Miller said.