Monday, April 18, 2016

Rep JD Mesnard on Arizona Flex Loans

(Reposted from

My Turn: Providing an alternative to Arizonans on payday loans

Last month, the Arizona House of Representatives passed a consumer finance bill that contained little-noticed provisions inserted by my colleagues that abolish the toxic lingering effects of payday loans once and for all in Arizona.

It was a wise move, as Arizona is the only state where certain loopholes are used due to the lack of other legal lending options available in the state, such as installment loans.
The consumer finance legislation in question, which carries these critical provisions, is the Arizona Flexible Credit Act.

This act will establish a realistic pathway to serve those lacking access to viable, legal and safe credit options for the first time in Arizona, and will further help consumers rebuild their credit scores and profiles.
It permits loans from $500 to $2,500, which must be paid in equal monthly payments over a term of up to 24 months.

Research in other states shows that the overwhelming majority of these types of installment loans are paid off in approximately six months. The maximum monthly interest rate is comparable to existing title loans at 15-17 percent; however, much like existing title lending in Arizona, the heated marketplace between lenders will drive down rates.

For Arizona’s working middle class, there is an unmet need for these types of loans, which are not offered by traditional banks and credit unions.

Furthermore, this proposal carries the most robust set of consumer protections anywhere in the nation. The protections include:
  • A free repayment plan option for at least three months if a customer becomes delinquent in his or her payment schedule
  • A database that will track all lending activity and require authorities to immediately investigate any violations of the statute
  • No hidden or additional fees
  • A 10-year legislative review and 20-year sunset (elimination)
Under the proposal, qualified entities can apply for licenses to offer flexible credit loans if they meet certain criteria of solvency and legitimacy as determined and overseen by the state Department of Financial Institutions , as it should be.

The public policy is sound. My colleagues in the Arizona House did tremendous work, quietly in some cases, inserting major amendments to this legislation last month on the House Floor with little fanfare.

The bill, SB 1316, faces a vote in the Senate in the coming days, and I am hopeful that the governor signs it quickly. Arizonans can win with this long-overdue legislation.

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