Saying the rates they charge amount to usury, backers of a new initiative seek to outlaw title loans — or at least the interest they are allowed to charge.
Legal papers filed last week indicate voters could be asked next year to remove the exemption that the industry now has from state laws limiting interest to no more than 36 percent a year. Current title loans can carry an annual percentage rate up to 204 percent a year.
Backers need 237,645 valid signatures by July 2, 2020, to put the issue on the general election ballot that year.
The move is being pushed by many of the same organizations that were successful nearly a decade ago in wiping out so-called “payday loans’’ where people could borrow up to $500 for two-week periods at effective interest rates that could exceed 400 percent.
That, however, left the option for people who own their vehicles to borrow against it.
Kelly Griffith of the Southwest Center for Economic Integrity, one of the groups behind the initiative, said the industry has stretched the law to the point where people don’t even need to have a clear title to their vehicles.
“They’re exploiting that loophole,’’ she said, lending money to those who cannot afford to repay and therefore have to keep taking out new loans. “It’s another name for payday loans.’’
In 2008 voters decided to kill off the payday loan industry despite lenders spending more than $17 million to keep it alive. Since that time, the Consumer Federation of America and the Center for Economic Integrity released a report showing that the title lending industry has exploded in Arizona.
There have been several legislative proposals to rein in the industry and cap the allowable interest at 36 percent.
Each of those has fallen short in the Republican-controlled Legislature. That leaves foes of the industry the option of taking their case directly to voters.
The initiative is likely to get a fight from the industry which has argued that it provides an option for people who do not have access to easy credit at regular interest rates — meaning below that 36 percent APR.
“Our customers are individuals that can’t get those rates,’’ said Stuart Goodman, who lobbies for the Arizona Title Loan Association, saying most have no relationships with banks.
“We’re dealing with high-risk individuals with bad credit that have some sort of instant short-term credit need,’’ he said. “They’re not being served by the traditional banking community because of the risk associated.’’
But Griffith said she believes the industry effectively encourages people to borrow, noting, “If you do not have enough income to meet your basic cash flow needs, whatever those are...what are the chances you’re going to be able to pay that loan back?’’
“It drives people to bankruptcy, to closing checking accounts, to addictions,’’ Griffith said. “So the consequences are huge.’’