Program Helps Maricopa County Residents Pay Off Arizona Title Loans
Inside Subprime: March 18, 2019
By Lindsay Frankel
While payday loans are illegal in the state of Arizona, other high-interest loans, such as flex loans and car title loans, are still available. People with bad credit who lack access to traditional banking services often turn to title loans in Arizona. But these loans can carry APRs of 300 percent or more, according to the Federal Trade Commission. Borrowers can end up spending 2 to 3 times the amount they borrowed without getting closer to paying off the loan. To make matters worse, borrowers who default risk repossession, and many borrowers rely on their vehicle to earn income. The Consumer Financial Protection Bureau found that one in five title loan borrowers end up having their cars seized for default.
Because title loans provide quick cash, usually without a credit check, they are a tempting choice in the case of an emergency. 40 percent of Americans can’t cover a $400 emergency expense, leaving them vulnerable to high-cost borrowing. That’s what happened to Mesa resident Rakesha Hill when her car broke down; she didn’t have the $700 she needed to get it fixed. The mother of three works for a charity that assists homeless families and earns a modest income. Hill, 39, was desperate, so she took out a title loan. But she found it difficult to pay back the loan because of the exorbitant interest rate. “I was already a year into paying” $100 per month, “and nothing was going into the principal,” Hill said.
Title loans trap many borrowers in debt, including Hill. “It’s like a cycle. You’re paying them just enough to keep them from harassing you,” she said. But when Hill came across Lend a Hand, a program that allows borrowers to take out loans from a credit union at lower interest rates, she found hope that she would be able to get out of debt.
Qualified Maricopa County residents can take out loans with interest rates of only 15 percent, a fraction of what title lenders charge. In addition, Phoenix-based nonprofit Take Change America provides participants with debt counseling and helps borrowers save for the future as part of the program. The nonprofit will even negotiate with lenders to lower payments and interest rates and halt collection calls on behalf of participants. While borrowers aren’t required to take part in the program upon approval for a loan, the additional support can help consumers get out of debt faster.
According to program advocates, Lend a Hand is designed to help Maricopa County residents get out of the debt trap and avoid future title loans. “Sometimes people think their only option is to go to [a title loan provider],” said MariSol Federal Credit Union CEO Robin Romano. “Anytime that we can help people see another way to do something is a good thing.” Hill has continued to utilize the banking services at MariSol Federal Credit Union, including taking out loans at lower interest rates when unexpected expenses arise.
Not everyone will qualify for the program, however; people with severe debt or multiple loans will likely not be approved.
“It’s an excellent tool for those in the early stages of being trapped,” Romano said. “The vast majority of people we have to decline … they owe so much more than they can pay back, it’s like putting a Band-Aid on a gushing wound.” Still, everyone is encouraged to apply for the program.