Payday lenders face rare honesty attack
It may sound axiomatic, but it is rarely said out loud: businesses that depend on the poor need the economic system to keep producing the poor in order to survive. You almost have to applaud the payday loan industry for finally making it explicit in Arizona.
A proposed constitutional amendment that looks likely to be voted on next year would limit future increases in the minimum wage, could claw back planned increases already slated to go into effect and eliminate a week of paid sick leave. One of the major trade associations in the payday loan industry funded the measure, clearly highlighting the link between the lack of income and the spread of predatory financial services. “It’s pretty amazing,” says Rodd McLeod, who works with Arizonans for Fair Lending, which is fighting against the proposed voting measure. “We need people to be poor to keep making money.”
The ballot measure is actually a response to the efforts of consumer advocates to eliminate high dollar value loans in Arizona. In 2008, the state flatly rejected payday loans; as an industry-backed voting measure, Proposition 200 would have allowed these types of low-cost, short-term, easy-to-roll loans, and was defeated by a popular vote of 60-40. But payday lenders have found a way nonetheless: about half of them have changed their business model to auto title lending. These are also low-cost loans that use a borrower’s car title as collateral. Typically, these loans last two to four weeks and the annual percentage rate (APR) can reach 204% in Arizona.
According to figures from Arizonans for Fair Lending, one in three government borrowers end up extending their car loan, creating a cycle of debt. One in five ends up having their vehicle repossessed. Securities loan borrowers spend $ 254 million a year on interest, according to an analysis by the Center for Responsible Lending.
After years of work, Arizonans for Fair Lending filed a voting measure for the November 2020 election that would restrict auto title lending in the state, reducing the allowed APR from 204% to 36%, making it equal to the rate maximum interest for other loan consumers in the state. “Usury is always wrong,” said Stephany Brown, president of the Society of Saint Vincent de Paul in Tucson, in a statement after the ballot measure was announced.
The lenders then fought back, and then some. Their initiative, a proposed constitutional amendment known as the Arizona Economic Freedom Act, seeks to “prohibit the government from dictating price terms in transactions between individuals.” In the area of lending, this means that the state government could not set any limit on financial services interest rates, neither 36% nor 204%. If passed, it would overturn the Arizonans for Fair Lending voting measure, as it would be enshrined in the constitution. Payday loans would still be banned, but auto titles and other lenders would be allowed to rampage, with no limit on their interest rates.
But the initiative goes much further.
The setting of taxes and public services would remain unchanged. But any regulation of ATM fees, or late fees on various transactions, would be eliminated. And since the employment contract is also a contract between private persons, the Law on Economic Freedom would also nullify the mandates provided by the law governing this process. This broad directive would completely eliminate minimum wages in the state. However, the wording of the initiative would retain any minimum wage “if it is in effect on December 31, 2019”.
That in itself could become controversial. Currently, with the passage of Proposition 206 in 2016, Arizona’s minimum wage is expected to increase. Right now it stands at $ 11.00 an hour, and on January 1, 2020, it is expected to rise to $ 12.00, with an inflation index thereafter. The Economic Freedom Act won’t be passed until November 2020, but if passed, donors could potentially seek to lower the minimum wage to $ 11.00 and freeze it there. The state Supreme Court took a right turn in 2016 when two more justices sat in a system of amalgamated courts. Thus, the likelihood of a decline in the minimum wage, if the initiative passes, is very possible.
In addition, Proposition 206 provided for one week of paid sick leave for each Arizona employee. This too would be considered under the Economic Freedom Act as illegal taxation in a transaction between private persons, and would be eliminated.
Who runs the Economic Freedom Act? The short-term loan industry. The lead group bears the innocuous name “Arizonans for Financial Freedom”, but as The Republic of Arizona explains, the main sponsor is a group called the National Credit Alliance, which is affiliated with the Financial Services Centers of America, a key business group for payday lenders and check cashing stores.
In other words, you have an industry that depends on a constant flow of poor people intervening in government policy to ensure a constant flow of more poor people who need its services. “The answer to American families struggling from salary to salary is a living wage, not predatory loans,” says Lauren Saunders, associate director at the National Consumer Law Center.
Usually you have to dig to find such an honest valuation from financial predators. The annual report of the Securities and Exchange Commission of Elevate Financial, a publicly traded short-term lender, contains such honesty. In a description of various risk factors for the business, Elevate writes: “A decrease in demand for non-senior loans due to increased savings or income could result in loss of income or a decline in profitability… For example, an increase in state or federal minimum wage requirements… could reduce the demand for non-senior loans.
It’s buried on page 48 of a 214-page report. But Arizona’s ballot measure directly ties the fortunes of predatory lenders to stifling minimum wage increases. “It is both shocking and predictable that payday lenders see a living wage as a threat to their debt trap business model,” Saunders said.
The Economic Freedom Act must collect 356,467 signatures by next July to proceed with the ballot; Residents are told this would prevent the government from raising interest rates, a misleading argument at best. The initiative will likely be on the same ballot as Arizonans for Fair Lending’s interest rate cut proposal next November, in the midst of a hotly contested presidential election where Arizona is shaping up to be the one of the rare battlefields.
Payday Loan Industry Deep In Politics: Just A Few Weeks Ago The Washington Post revealed secret tapes showing payday lenders discussing how contributing to Donald Trump’s re-election would keep them safe from federal regulation. But they really blurted out their slip in Arizona, explicitly telling their customers that they wanted to keep them poor.