This is the 9th guest blog post in a series of 10 by Leah Gonzalez, a master's degree student in social work at the University of Texas in Austin and a graduate of Howard Payne University.
Several states have banned payday and auto title lending. At the end of July 2010 Arizona joined these ranks – kind of. It's true; in 2010 Arizona enforced "Operation Sunset," which made it illegal to provide a payday loan. Part of this operation includes a limit of 36 percent interest on other consumer loans. Research from the Arizona Attorney General concluded that these protective measures would benefit Arizona consumers by outlawing these risky lending practices.
Though Arizona took action regarding payday loans, they also realized how these measures might not be comprehensive. Payday loans are illegal, but lenders will often seek other avenues to continue business. The Arizona Attorney General's office highlights some of these other avenues, including auto title loans.
Before Operation Sunset went into effect, there were more than 600 payday lenders in Arizona. More than 200 of those changed their business model to become auto title lenders. Auto title loans are legal in about 20 states, and in Arizona it is not even required for a borrower to own the car's title.
The lenders know who and where to target. As I've previously discussed, these borrowers tend to be low income and live in areas of high poverty. About a year after Operation Sunset was enacted, while federal action created the Consumer Financial Protection Bureau in order to monitor these kinds of loans across the country.
Texas hasn't outlawed payday or auto title loans, and in the upcoming legislative session, I don't think many will recommend it. Rather, the coalitions against payday and auto title loans will suggest ways to provide standards of practice for these lending agencies, like placing limits on fees and how often a loan can be renewed. This problem is multifaceted and complex, and it will take incremental changes to foster fair lending in Texas.
I've included some videos of Arizona news reports on Operation Sunset:
Arizona Attorney General Tom Thorne. (2012). Operation sunset the end of predatory loans by payday lenders. Retrieved from http://www.azag.gov/operation_sunset/
AZAttorneyGeneral. (2010). Goddard to Aggressively Enforce Payday Loan Ban with 'Operation Sunset.' Retrieved fromhttp://www.youtube.com/watch?v=hhKKqSt0mCE .
Abc15com. (2011). Predatory Title loans the focus of new Fed Consumer Bureau. Retrieved fromhttp://www.youtube.com/watch?v=Xr9vSWVXR2M&feature=plcp .