Arizona’s 2010 elimination of “payday” loans has driven borrowers to costlier, riskier alternatives – including unregulated, offshore lenders with which consumers have no protection or recourse in case of fraud or abuse. Independent research demonstrates there remains significant market demand for a short-term, small-dollar lending product. Almost 6 in 10 Americans lack the ability to pay $500 in unanticipated expenses, and more than 1 in 4 Arizonans report they are unbanked or underbanked.
Flexible Loan Options Are Needed
- As many as 100 million Americans lack access to traditional banking
- Many more have no credit or poor credit
- A well-regulated system of short-term, small-dollar loans will provide a reasonable financial option when these individuals run into a financial emergency
Flexible Loan Options are Fair to Consumers
- $2,500 lending cap with 18-month repayment requirement
- Fully complies with federal Truth in Lending Act
- Fully transparent interest rates/fees, and regulated by the Arizona Department of Financial Institutions
- Provides safety-net to borrowers who’ve fallen behind on payments
- Freezes late fees and interest accrual for borrowers who’ve fallen at least 3 months behind, request help and complete appropriate financial counseling
- Closed-end loans with database to ensure borrowers aren’t “stacking” loans
Flexible Loan Options are Better than the Alternatives
- Arizona’s elimination of “payday” loans in 2010 had the unintended consequence of driving borrowers to underground, more costly or risky alternatives
- These less-favorable options include anonymous, off-shore lenders with which borrowers have recourse or protection against fraud or abuse
- Independent research demonstrates Arizona’s prohibition has not lessened demand but, instead, has only increased reliance on more detrimental financial practices such as pawn-shop loans, bounced checks and overdraft protection
In other words, Arizona’s elimination of “payday loans” has failed.
It’s time to bring this market out of the shadows with a well-regulated, reasonable alternative for consumers needing immediate, short-term financing.