Lending businesses and banks provide borrowing options for consumers who find themselves in adverse financial circumstances. Arizona has a lot of alternatives when it comes to lending, including auto title loans, home improvements, mortgage loans, tax refunds, and payday lending. It is crucial to note that payday lending is illegal in Arizona, but consumers still get the services from online lenders who operate outside of the region. The state of Arizona has instituted various regulations to protect consumers from the threat of predatory lending, which has become a big concern across numerous regions. The Department of Financial Institutions is responsible for regulating lending businesses in Arizona.
Interest Rate Laws
The institution of interest rate laws (usury laws) is one-way governments ensure that consumers do not fall prey to predatory lenders. Federal statutes don’t cap loan interest rates, so the responsibility falls to the state. Financial needs come up unexpectedly, forcing individuals to resort to borrowing money, and having a limit on interest rates ensures that lenders don’t take advantage of desperate borrowers. The usury laws in Arizona allow a maximum of 10% interest rate, but borrowers and lenders have the freedom to “contract for any rate agreed upon” (§44-1201), meaning that a consumer can waive the state laws protection by agreeing to higher interests. A lending institution or bank that charges more than the set limit risks a penalty of forfeiting all interest. In a case where payments are more than the principal, a judgment favoring the debtor may be given with a 10% interest rate (§§44-1203, 1204).
Title Loans Regulations
Title loans are, particularly popular, and Arizona is one among nine states in the US that has set a limit on interest rates. For a car title loan of under $500, the law establishes the interest at 17%. Title lenders charge high-interest rates citing lack of credit checks when approving loans. Compared to unregulated states, Arizona’s rate caps are considerably lower for bigger loans. The terms of a title loan stipulate that when a borrower defaults, the lender has the right to repossess and sell their vehicle to repay the loan. In Arizona, repossession of a car requires a creditor to have a court order but a lender is not obligated to warn a customer when they come to collect. The law requires the sale of a vehicle to be in a “commercially reasonable manner “and the proceeds used to pay the remainder of a loan plus any other expenses, with the remaining money going to the borrower. A written account should indicate the division of the sale proceeds for transparency.
Banks and lending institutions have to adhere to state and federal regulations, in particular, The Truth in Lending Act (Regulation Z) contained in Title I of the amended Consumer Credit Protection Act. The purpose of the regulation (§226.1b) requires the disclosure of terms and costs of consumer credit to facilitate informed use. Part C shows who is covered by the regulation and that is any business or individual who meets the following four conditions:
(i) Credit is offered or extended to consumers;
(ii) Offering and extension of credit is regular;
(iii) Credit is subject to a charge or payable by a written agreement in more than four installments; and
(iv) Credit is mainly for personal, family, or household purposes.