In 2008, the voters in Arizona made it illegal for payday loan companies to allow consumers to borrow money. However, In March 2015, the Arizona House passed legislation that will allow payday loans in AZ. The new cash advance regulations mandate that these lenders offer a new product with changes from previous products offered.
One of the Representatives in the House stated that these “flex loan” companies provide a product or service for people who have poor credit scores. The pay day loan can provide quick cash for those who have unexpected expenses that may come up.
Some of the lawmakers decided that it should be up to the consumer to decide if they wanted to do business with these predatory lenders; however, there are some new protections in place.
Previously before the legislation that made it illegal for payday loan companies to operate in Arizona, the consumer had to give the lender a blank check. The lender would hold the check for two weeks or so before cashing the check. Typically, the check was held until the consumer’s next payday. The interest rates on these types of loans would sometimes exceed 400% interest per year.
Now, the new payday advances are unsecured, but lenders still require consumers to allow direct access to their bank account to be able to automatically deduct loan payments. This new bill will more than likely still allow these lenders to slowly start preying on consumers again.
Payday loan companies are no longer just in brick and mortar locations. Now, consumers can also access payday loans online. Some lenders online make it really easy for consumers to get entangled in the debt trap. They advertise a 3 step process. The consumer just has to fill out the application, sign the loan term documents, and they can receive the funds in their bank account quickly.
The qualifications for these loans are relatively simple. The borrower must typically be a U.S. citizen. They must be 18 years of age or older. It is also imperative that they have a checking account that is eligible for direct deposit. Most lenders also require that the borrower has held a steady job for a period of time. In most cases, they want the borrower to have held a job for a minimum of a few months.
Unfortunately, the short duration of online payday loans and payday loans received from a physical location often result in a consumer getting repeat loans. They advertise that this quick cash can help a person get back on their feet after an unexpected expense, but in actuality, these loans become a source of a never ending economic treadmill.
Lawmakers in Arizona passed the legislation, but there was still some Representatives that felt that although people with bad credit may need quick cash, ultimately these payday loans hurt people much more than they can ever help them. Nevertheless, people should have a choice in the decision, so it is legal for payday loan companies to operate in AZ.
Unfortunately, consumers once again can be victimized by these predatory lenders, but at least they have a choice in the matter. In some cases, there can be a true emergency that requires some quick cash. For example, a person may experience their car breaking down. In this case, the person can’t get to work without transportation, so they can lose their job. Other emergency circumstances can pop up as well.
In many cases, these cash advances are not used for emergency situations.
Consumers that can’t afford to save money or do not have the resources to borrow money from a traditional lending institution end up getting money to pay for a want not a need. With the interest rates sometimes being 400% per year, and the short amount of time that the consumer has to pay the loan back, the consumer will often renew the loan.
The interest just keep stacking up, and the consumer gets into a cycle of renewing the loan over and over. It takes very little time for the person to end up in a situation where they can’t pay the entire loan off, so they keep making payments and the interests’ rates keep building. This is when the consumer is in a type of economic slavery.