Art Industry

Lenders offer charitable contributions in exchange for high interest rates

In a last-minute voting offer, the consumer lending industry offers to donate an indefinite share of its profits to charities in return for the legal right to grant loans with monthly interest rates of up to 15%.

Members of a Republican-dominated conference committee on Thursday approved legislation allowing high-interest loans of up to $ 2,500 for up to 18 months. It came after supporters added industry-developed language that creates a fund that the Governor’s Office for Children, Youth and Families could use to provide grants to charities to provide loans. low or no interest and advise consumers.

But the legislation was deliberately designed not to say how much of each company’s profits should go into the fund. That’s because the Arizona Constitution requires a two-thirds vote for any new specific assessment, which the plan can’t achieve.

Instead, the wording leaves it to a person appointed by Governor Doug Ducey to decide how much to assess. And while there is a cap on how much could be raised – $ 10 million over the next decade – there is no minimum.

In fact, the metric indicates that if fewer than five lenders go into business in Arizona, the appraisal requirement is removed and the fund would not exist.

Kelsey Lundy, the lender lobbyist, said the legislation should actually be seen as consumer reform.

First, she said the rates are no higher than what lenders can now charge for “title loans” when a vehicle is pledged as collateral. And Lundy said the change also eliminates “registration loans,” a loophole in the laws that allows people who don’t directly own their vehicles to borrow money at title loan rates.

Representative Debbie McCune Davis, D-Phoenix, did not dispute this. But she said the state shouldn’t create even more opportunities for what she calls “predatory loans,” especially less than a decade after the Arizonans went to the polls to kill off loans on salary, another form of high interest loans.

Rep. Mark Cardenas, D-Phoenix, was even less charitable in his description of the last-minute offer of some money for grants to charities to buy votes.

He said any assessment of the grants will be based on the volume of business these consumer lenders manage to generate from people who may not be able to borrow from banks and credit unions that are legally allowed to charge only 36% per year.

“So it’s a tax on the poor to help pay the poor,” Cardenas said.

This description elicited a strong reaction from Senator John Kavanagh, R-Fountain Hills, who was one of the champions of the legislation to create these new types of loans.

He said the assessment would not result in higher interest rates than allowed by the bill: 13% per month for secured loans and 15% for unsecured loans.

“They are taking this on their money,” he said.

The industry didn’t want to do this in the first place. But Kavanagh’s original measure died on the Senate Finance Committee when Senator Kimberly Yee, R-Phoenix, sided with the Democrats.

JD Mesnard Representative R-Chandler then took up the case in the House. But he just creaked from there with the minimum of 31 votes as several Republicans refused to follow them.

This set the stage for Thursday’s conference committee to find language that could secure the necessary votes.

Under SB1316, maximum interest rates have been reduced from the original 15 percent for secured loans and 13 percent for unsecured ones. And the loans must be repaid within 18 months instead of the 24 months in the plan adopted by the House.

But the big change is the creation of a Community Development Services Fund.

The money raised would be turned over to the director of the Governor’s Office for Children, Youth and Families who would decide – the legislation does not say on what basis – how to allocate it for grants to “qualifying charities” . In turn, they could offer low interest or zero interest low interest loans, emergency funds, credit counseling, and financial literacy programs.

Cardenas found two problems with this, one being the lack of guidelines for awarding grants, with the discretion left entirely to an appointed governor.

But what the law also doesn’t say is how much would actually be available.

Kavanagh did not dispute that the valuation could be a fraction of one percent of what lenders make.

“If it brings in $ 10 million, then the poor will be all the better for it,” he said.

This, however, ignores the fact that $ 10 million is not a goal but only an absolute cap on what could be accumulated. Lundy said she assumes the cap will be $ 1 million per year for the first 10 years of the legislation.

But the actual levy would be left to the director appointed by the governor of the Department of Financial Institutions, with no obligation to collect this amount.

Kavanagh, who never asked for the assessment in the first place, brushed it off. He said the focus should be on the underlying legislation which creates a new way for those who need the money to get it fast.

“At the end of the day, if you’re the guy with the broken car transmission and you don’t have the money (to fix it) you’re going to lose your job, you’ll be glad you have the money on hand.

There is no way to determine how much $ 1 million per year reflects in the profits that the industry could generate by making these kinds of loans in Arizona.

But in 2008, the industry spent $ 14 million in its attempt to convince voters to let them continue to make short-term, high-interest payday loans in the state. Despite these expenses, the industry’s proposal was rejected by a 3-2 margin.

It remains to be seen whether the changes adopted by the conference committee will garner the necessary votes in the Senate. But Samuel Richard, executive director of Protecting Arizona’s Family Coalition, said that won’t change opposition to the extent of various community and charity groups.

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