PHOENIX — A Mesa GOP lawmaker is proposing what he concedes is a very un-Republican thing. Senator David Farnsworth has introduced two bills to cap the interest rate that can be charged by securities lenders at 36%. This compares to rates of up to 17% – per month.
Farnsworth also wants to close what he says is a loophole in the law that allows people to borrow without actually having a title to their vehicle, a practice he says is reminiscent of the now-banned practice of payday loans.
“There’s a limit to everything,” Farnsworth said of his desire to crack down on title lending, money borrowed with the vehicle’s title used as collateral. “The question is, are they honest?”
He said the current law provides for a tiered interest structure for title loans, with lenders allowed to charge 17% per month on loans of $500 or less. This rate decreases as the money borrowed increases, with interest allowed at 10% per month on loans over $5,000.
But Farnsworth said it really doesn’t paint a true picture for borrowers.
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“The (annual) rate can be over 300%,” he said.
SB 1005 would amend the Securities Lending Act to state an annual rate, rather than a monthly rate, and place the cap at 36%. And an even more aggressive proposal in SB 1004 would apply the 36% cap to the first $3,000 borrowed, with anything over that cap roughly capped at 24% per year.
Farnsworth said it was not the first time he found himself at odds with his party, at least on this issue.
For example, he cited a proposal several years ago by Senator JD Mesnard, R-Chandler, to allow something called “flexible loans.”
On paper, these would have carried an interest cap of 36%. But the key would be how lenders calculate “usual fees” for everything from managing account information, validating customer information, processing transactions, and providing periodic billing statements.
These fees are now capped at $150.
Mesnard’s legislation, however, would have allowed that fee to total half a percentage point of the outstanding balance. On a maximum authorized loan of $3,000, that could add up to $15 a day in fees — on top of the 36% interest — raising the effective interest rate to triple digits.
Farnsworth said he and the then senator. Kimberly Yee, R-Phoenix, who is now state treasurer, worked with Democrats to reverse the plan.
“I know a lot of Republicans feel like ‘free market, free market, it’s fine as long as it’s the free market,'” he said. But Farnsworth said it wasn’t so. simple.
“I say we have to be responsible and consider the effects of what we do,” he said.
“A lot of people are hurt,” Farnsworth continued. “I think we have to be responsible for everything that happens in our state as much as possible.”
Farnsworth said he thinks his view on interest caps aligns with the sentiments of most Arizonans.
He pointed to the 2008 election when voters voted to scrap payday loans as lenders spent more than $17 million campaigning to keep them legal.
These short-term loans allowed people to borrow up to $500 for two-week periods, at interest rates of over 400% per year.
But Farnsworth said it was clear the lenders had not given up.
“Now they’re coming back and calling them ‘registration loans,’ he said, high-interest loans made by title lending companies — but to people who aren’t actually owners. of their vehicles. He said it was effectively the same as a payday loan.
“They found a loophole.”
It is this “loophole” that Farnsworth said his SB 1003 would close by requiring “clear title to the motor vehicle the borrower is using to secure the loan”.
There was no immediate response from the securities lending industry.
But a move with similar language imposing a 36% annual interest cap has drawn opposition from Stuart Goodman, who lobbies for the Arizona Title Loan Association.
“Our customers are people who can’t get those rates,” he said, saying they were “high-risk people with bad credit” who need immediate, short-term cash. term.
This ballot measure would effectively ban title loans by capping the interest rates that lenders can charge at a maximum of 36%. Backers need 237,645 valid signatures by July 2 to put the question on the 2020 ballot.
But there could be another measure on the ballot next year that trumps both.
The National Credit Alliance is gathering signatures on a proposal that would give banks, finance companies and other lenders the freedom to charge their Arizona customers whatever interest rates they want.
This is intended as a constitutional amendment, which means that if approved, it will supersede all state laws, whether enacted by the Legislative Assembly or the voters.
Sean Noble, the proposal’s campaign manager, said the amount of interest lenders should be able to charge should be “a market decision”.
“If you can find someone to offer you a lower interest rate than someone else, then it should be a competitive market,” he said.