Arizona Payday Loans are Illegal but Predatory Options Still Exist, Credit Union Offers Alternatives
Inside Subprime: Nov 26, 2018
By Lindsay Frankel
The largest credit union in Southern Arizona will offer alternatives to high-price title loans for underserved populations using a $950,000 federal grant. A major credit union based in Tucson, Arizona received the financial assistance funding via the U.S. Treasury’s Community Development Financial Institutions Fund, a program established in the early 90s with a mission to provide financial services and access to investment capital to underserved people.
The director of market and product development for the credit union, said the credit union aims to issue lower cost loans to low-income consumers, many of whom are considered unbanked. “We look at access to the financial markets as a continuum — you take someone from being ‘unbanked’ to participating in the local economy,” he said.
Research revealed that hundreds of the credit union’s members have depended on costly products such as car title loans, which have annual interest rates reaching 180 percent. Arizona banned payday loans in 2010; before that, payday lenders in Arizona charged annual interest rates topping 400 percent. But as title lenders continue to charge exorbitant rates and other predatory lenders have found loopholes to get around rate caps. “We think for the communities we serve, not only do we think we can do it better, but we think that’s our responsibility,” he said.
The credit union will match the federal grant, using the funds to back loans to targeted populations over the next three years. A portion of the grant will be used for four rural counties considered to be areas of “persistent poverty.” The credit union already has members in these areas and is partnering with local organizations to market the loans in neighborhoods that lack branches.