In a last-minute bid for votes, the consumer lending industry is offering to give some undetermined share of its profits to charities in exchange for being given the legal right to make loans with monthly interest rates up to 15 percent.
Members of a Republican-dominated conference committee on Thursday approved legislation permitting the high-interest loans of up to $2,500 for up to 18 months. That came after supporters added industry-crafted language that sets up a fund that the Governor’s Office for Children, Youth and Families could use to give grants to charities to make low- and no-interest loans and do consumer counseling.
But the legislation was purposely crafted to not say how much of each company’s profits they would have to kick into the fund. That’s because the Arizona Constitution requires a two-thirds vote for any new specific assessment, something the plan cannot get.
So instead the language leaves it up to an appointee of Gov. Doug Ducey to decide how much to assess. And while there is a cap of how much could be collected — $10 million over the next decade — there is no minimum.
In fact, the measure says if fewer than five lenders go into the business in Arizona, the assessment requirement is forgiven and the fund would not exist.
Kelsey Lundy, the lobbyist for the lenders, said the legislation actually should be seen as a consumer reform.
First, she said the rates are no higher than what lenders can now charge for “title loans,” where a vehicle is pledged as collateral. And Lundy said the change also eliminates “registration loans,” a loophole in the laws that allowed people who do not own their vehicles outright to borrow money at title loan rates.
Rep. Debbie McCune Davis, D-Phoenix, did not dispute that. But she said the state should not be creating even more opportunities for what she calls “predatory lending,” especially less than a decade after Arizonans went to the polls to kill payday loans, 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 cash for grants to charities to buy votes.
He said any assessment for grants will be based on the amount of business these consumer lenders manage to generate from people who may not have the option to borrow from banks and credit unions who are legally allowed to charge just 36 percent a year.
“So it’s a tax on the poor to help pay the poor,” Cardenas said.
That description drew a sharp response from Sen. John Kavanagh, R-Fountain Hills, who has been one of the champions of legislation to create these new kinds of loans.
He said the assessment will not result in higher interest rates than the bill allows: 13 percent a month for secured loans and 15 percent for unsecured loans.
“They’re taking this from their monies,” he said.
The industry didn’t want to do this in the first place. But Kavanagh’s original measure died in the Senate Finance Committee when Sen. Kimberly Yee, R-Phoenix, sided with the Democrats.
Rep. J.D. Mesnard, R-Chandler, then took up the cause in the House. But it just squeaked out of there with the minimum 31 votes as several Republicans refused to go along.
That set the stage for Thursday’s conference committee to find language that could be guaranteed the necessary votes.
Under SB1316 the maximum interest rates were reduced from the original 15 percent for secured loans and 13 percent for those without security. And the loans have to be repaid within 18 months instead of 24 months in the House-passed plan.
But the big change is establishment of a Community Development Services Fund.
Cash raised would be given to the director of the Governor’s Office of Children, Youth and Families who would decide — the legislation does not say on what basis — how to give it out for grants to “eligible charities.” They, in turn, could provide low- or zero-interest small dollar loans, emergency funds, credit counseling and financial literacy programs.
Cardenas found two problems with that, one being the lack of guidelines for awarding the grants, with the discretion left entirely to a gubernatorial appointee.
But what’s also left unsaid by the legislation is how much actually would be available.
Kavanagh did not dispute that the assessment could be a fraction of one percent of what lenders are making.
“If that raises $10 million, then the poor are all the better for it,” he said.
That, however, ignores the fact that $10 million is not a goal but only an absolute cap of how much could be accumulated. Lundy said she presumes the cap will be $1 million a year for the first 10 years of the legislation.
But the actual levy would be left to the gubernatorial-appointed director of the Department of Financial Institutions, with no requirement to collect that much.
Kavanagh, who never sought the assessment in the first place, brushed all that aside. He said the focus has to be on the underlying legislation that creates a new way for those who need money to get it quickly.
“The bottom line is, if you’re the guy whose car transmission is broke and you haven’t got the cash (to fix it), you’re going to lose your job, you’re going to be happy to have that money available.
There is no way to determine how much $1 million a year reflects in the profits that the industry might generate from making these kinds of loans in Arizona.
But in 2008 the industry spent $14 million in its bid to convince voters to let them continue making high-interest short-term payday loans in the state. Despite that spending, the industry proposal was defeated by a 3-2 margin.
Whether the changes adopted by the conference committee will pick up the necessary votes in the Senate remains to be seen. But Samuel Richard, executive director of the Protecting Arizona’s Family Coalition, said it won’t change the opposition to the measure by various community and charity groups.