Arizona ballot effort reframes payday lending debate

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Over the last decade, American voters have proved remarkably receptive to bans on high-cost consumer loans. In Montana, an interest rate cap got the backing of 71% of the electorate. A South Dakota measure passed with 76% support. In Colorado the margin was 77% to 23%.

The blowout results show that payday lending is not an ideological issue for the general public. Voters in red states, purple states and blue states all frown on triple-digit interest rates.

Next year in Arizona, a proposed ballot measure that would amend the state constitution will offer a test case for the durability of that consensus.

The Arizona measure, called the Economic Freedom Act, would enable consumer lenders to charge whatever interest rates they want. But its supporters do not plan to frame the ballot measure in such practical terms. Instead, they will invoke a familiar theme in Republican Party politics, appealing to conservative voters’ generalized disapproval of government intervention in the economy.

“If we’re going to have these folks continue to inject the government into more and more of our lives, then we need to defend ourselves from that,” said Sean Noble, an Arizona political consultant whose firm is managing the campaign.

The proposal amounts to a bet that if the debate is framed in ideological terms, public opinion is malleable in a highly polarized political environment.

“We do feel comfortable that in Arizona, in the frame of this next election environment, this is a good debate for us to have,” Noble said. “Our messaging is going to stay at a high level. ‘Fundamentally, do we believe the government should be involved in these issues or not?’ ”

The constitutional amendment would do more than just unshackle subprime lenders. It would also ban increases in the state’s minimum wage, which is currently set at $11 an hour. On their own, minimum wage hikes also tend to poll well with both Democratic and Republican voters.

So why are conservatives in Arizona tying together a plan to eliminate caps on interest rates with a freeze in the state’s minimum wage?

High-cost lenders stand to benefit from the wage freeze because their customers include many low-wage workers who rely on expensive credit to pay the bills. Industry critics argue that preventing pay hikes amounts to an effort to make vulnerable citizens even more reliant on predatory loans.

“Heaven forbid that people have a living wage,” Kelly Griffith, executive director of the Southwest Center for Economic Integrity, said sarcastically, “and that they can meet their basic living expenses.”

So far, the only contributor to the campaign in favor of the Economic Freedom Act is a group affiliated with the payday lending industry. The National Credit Alliance, whose members include the payday lending trade group Financial Service Centers of America, gave $155,000 to the campaign in September.

Noble, the political consultant whose firm is managing the campaign, said that he expects to draw financial support from various groups that support free-market causes.

The Economic Freedom Act would generally bar the state of Arizona, as well as counties and cities, from regulating prices on private transactions, though the measure includes some exceptions.

Supporters need to gather roughly 356,000 signature by July 2 in order to get the measure on the November 2020 ballot. They filed the text of the proposed constitutional amendment in late September, more than four months after a coalition of consumer advocates announced plans for a rival ballot measure that would change state law to strengthen an existing 36% cap on interest rates.

If both sides gather enough signatures, Arizona voters will vote on both measures next November. And if both measures pass, the constitutional amendment would trump the revision to state law. In that scenario, consumer lenders that currently charge triple-digit interest rates would be able to continue with business as usual.

So in order to prevail, consumer advocates will need both to pass the ballot measure that they are backing and defeat the constitutional amendment. Both measures would need a simple majority to pass.

Griffith expressed confidence that Arizona voters will support a stronger 36% interest rate cap. “If it’s on the ballot, I feel good,” she said.

The existing 36% rate cap in Arizona covers payday loans, but it exempts auto title loans, which has allowed many companies that offer payday loans in other states to operate in Arizona with a slightly different business model. The ballot initiative backed by consumer advocates would close this loophole.

Critics of the auto title lending industry in Arizona say that the loans are barely distinguishable from payday loans because the borrowers are not even required to hold title to their vehicles. According to the Southwest Center for Economic Integrity, five of the 10 largest title lenders in the state used to be licensed as payday lenders. In a report released in August, the group also calculated that Arizona residents pay roughly $255 million a year in interest on car title loans.

“It’s basically a payday loan by another name,” Griffith said.

Arizona is a traditionally Republican state that has trended more Democratic in recent elections. If the Economic Freedom Act gets approved by Arizona voters, it could serve as a model for other states, Noble said.

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Payday lending Law and regulation Arizona