Dear House Commerce Committee Member,

Please vote NO on HB2550 on your agenda tomorrow, for the reasons below.

Thank you,

Kelly Griffith

Southwest Center for Economic Integrity
(520) 250-4416
www.economicintegrity.org

Just like payday loans, HB 2550 would create a special carve-out for high-cost loans:

• Just like payday, the proposed fee structure incentivizes long-term, triple-digit interest rate debt. These loans are no different than payday loans, particularly when you consider the massive loan flipping.  Records from companies making these loans in other states show that 85% to 90% of profits for these loans come from refinancing loans to existing customers!

• HB 2550 hinders a sustainable financial market: Once in the market, just like payday lenders, all of these lenders charge the exact same rate – the highest allowable. In the words of Andrew Morrison, CEO of Sun Loans/Brundage Management, “The ceilings in fact become floors and everyone charges the exact same rates.”

HB 2550 would replace one predatory product with another:

• HB 2550 would legalize triple-digit APR interest rates to Arizona consumers for small consumer installment loans, exempting a new industry from the state’s 36% usury cap on consumer loans (A.R.S. 6-632 – Finance charges).

• HB 2550 ignores the voters’ mandate. When Arizona voters went to the polls in November 2008, they clearly said NO, by a 60%-40% margin, to triple-digit interest rates, special exemptions from the state’s usury cap, and fake “reforms” in the industry-sponsored Proposition 200.  HB 2550 would ignore the voters’ mandate by legalizing another form of high-cost consumer lending – under another exemption from the Consumer Loan Act – that inevitably would lead to long-term debt for borrowers.

• Arizona consumers cannot afford to replace one predatory loan product with another.  Our state – and others – already has consumer lenders serving this market, offering small installment loans at the current 36% rate cap or less. In addition, charity and relief societies, friends and families, existing AZ financial institutions and credit unions that offer small unsecured loans under the terms of the existing rate cap already exist in Arizona.

Voters don’t want triple-digit interest rates allowed in Arizona:

• Voters clearly stated that the 36% cap should apply to all lenders. No more special deals!  The carve-out in HB 2550 would allow certain lenders to play by their own rules, giving them a government-regulated, government-endorsed, competitive advantage over other consumer lenders in the market.

• HB 2550’s schemes have been rejected many times: HB 2550 is the same fee structure as HB 2061 and HB 2071, both of which never even made it out of committee in 2009.  It’s the same as HB 2672 from 2008, which also was rejected.  Just as they did with payday loans, voters and the legislature repeatedly rejected triple-digit interest loans that generate piles of fees for the lender and long-term debt for the borrower.

Prop 200, the Payday Loan Reform Act (2008):

• Prop 200, placed on the ballot and financed with nearly $15 million by the payday loan industry in 2008, would have continued triple-digit interest loans in Arizona by extending the industry’s exemption from the Consumer Loan Act. In 29 of 30 legislative districts, every congressional district, and every county across the state, their proposal was rejected.
  

Voters agreed: No more special deals for predatory lenders!



Prop 200 Results by Legislative District (2008):

Legislative District	Prop 200 ‘NO’ votes	Prop 200 ‘Yes’ votes	Percent ‘NO’	Percent ‘Yes’
1	59,694	36,748	61.9%	38.1%
2	29,673	25,742	53.5%	46.5%
3	37,163	30,073	55.3%	44.7%
4	70,200	51,075	57.9%	42.1%
5	38,423	27,106	58.6%	41.4%
6	46,144	33,628	57.8%	42.2%
7	47,680	32,137	59.7%	40.3%
8	55,487	36,234	60.5%	39.5%
9	40,460	31,896	55.9%	44.1%
10	28,792	21,572	57.2%	42.8%
11	52,311	27,491	65.6%	34.4%
12	53,447	47,600	52.9%	47.1%
13	14,920	15,539	49.0%	51.0%
14	11,033	10,091	52.2%	47.8%
15	23,234	16,005	59.2%	40.8%
16	23,580	22,235	51.5%	48.5%
17	36,299	22,218	62.0%	38.0%
18	25,977	17,748	59.4%	40.6%
19	44,642	32,230	58.1%	41.9%
20	48,478	29,156	62.4%	37.6%
21	58,506	41,854	58.3%	41.7%
22	61,932	44,587	58.1%	41.9%
23	51,889	39,301	56.9%	43.1%
24	26,391	14,936	63.9%	36.1%
25	40,287	27,376	59.5%	40.5%
26	61,873	28,924	68.1%	31.9%
27	35,268	22,209	61.4%	38.6%
28	48,231	20,976	69.7%	30.3%
29	27,526	19,068	59.1%	40.9%
30	72,177	34,852	67.4%	32.6%
AZ TOTAL	1,271,717	860,607	60%	40%

How the Fees Work in HB 2550:

HB 2550 would authorize acquisition fees and monthly handling fees using a complicated pricing structure.  The acquisition fee, 10% of the loan up to $75 dollars, is paid off within the first 90 days of the loan, but can be charged up front each time the loan is renewed.

HB 2550 would allow lenders to renew, or flip, loans up to three times per year.  There is no limit on the number of total renewals per loan. The lender does not have to wait until the end of the loan term to renew the loan and the lender may chose to renew the loan for an amount higher than the original loan.