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A proposed constitutional amendment being pushed by the payday and car title lending industry has an insidious provision that would keep borrowers from getting out from under its thumb by making sure they can’t be pulled out of poverty by rising wages.
Because people turn to predatory short-term loans when they don’t have money, higher wages – and in particular laws like ours, that adjust minimum wage increases annually for inflation – pose an existential threat to the payday loan industry.
The connection was highlighted Monday by The American Prospect Executive Editor David Dayen, in a piece that dug beyond the obvious implications of the Orwellian-named Arizona Economic Freedom Act, the measure that the predatory short-term lenders want on the ballot in 2020.
The measure is ostensibly a reaction to another proposed ballot measure, the Arizona Fair Lending Act, which would limit car title loans to an annual interest rate of 36% – a far cry from the 200% rate currently used – and effectively eliminate such loans in Arizona.
But Dayen focused on the other provisions in the payday-lender-backed measure that intend to “prohibit the government from dictating price terms in transactions between private persons.” Because employment ultimately is a contract between private persons, state laws setting minimum wages would be unenforceable.
Proof that the proposed constitutional amendment is aimed squarely at Arizona’s minimum wage laws comes in a clause that specifies that any minimum wage in effect as of Dec. 31, 2019, would be unaffected.
Because voters approved Proposition 206 in 2016, Arizona’s minimum wage now stands at $11 an hour. It is slated to go to $12 an hour on Jan. 1, 2020, and then be indexed to inflation every year after that.
If voters approve the constitutional provision, that $12 hourly wage will be rolled back, and those future increases to keep up with the changing value of the dollar won’t happen. And that’s the whole point, Dayen writes:
Who is leading the Economic Freedom Act? The short-term lending industry. The front group has the anodyne name “Arizonans for Financial Freedom,” but as The Arizona Republic explains, the lead sponsor is a group called the National Credit Alliance, which is affiliated with the Financial Services Centers of America, a key trade group for payday lenders and check-cashing stores.
In other words, you have an industry that relies on a steady stream of poor people intervening in government policy to ensure a consistent stream of more poor people who require its services. “The answer to American families struggling paycheck to paycheck is a living wage, not predatory loans,” says Lauren Saunders, associate director at the National Consumer Law Center.
Usually, you have to dig to find such an honest assessment from financial predators. The annual Securities and Exchange Commission report of Elevate Financial, a publicly traded short-term lender, does contain such honesty. In a description of various risk factors to the business, Elevate writes, “Decreased demand for non-prime loans as a result of increased savings or income could result in a loss of revenues or decline in profitability … For instance, an increase in state or federal minimum wage requirements … could decrease demand for non-prime loans.”
That’s buried on page 48 of a 214-page report. But the Arizona ballot measure ties the fortunes of predatory lenders directly to stifling minimum wage increases. “It is both shocking and predictable that payday lenders would view a living wage as a threat to their debt trap business model,” Saunders says.
Arizona voters have long shown that they side with workers and the working poor over greedy business.
In addition to the 2016 minimum wage increase, voters in 2006 raised the minimum wage from $5.15 to $6.75 an hour with annual inflationary increases. And in 2008, voters were not fooled by the predatory short-term lending industry’s claims that their loans were vital for the working poor to survive, and they overwhelmingly rejected a ballot measure funded solely by the industry to let them make loans with few restrictions.
They’re likely to get another opportunity in 2020 to keep the worst elements of capitalism from keeping Arizonans poor just to make a buck. I’m confident the voters will see just how ruinous this plan is.
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