ARIZONA STATE SENATE
Phoenix, Arizona
consumer lenders; loan
origination fees
Allows consumer loan lenders to charge origination fees on unsecured and revolving loans.
Background
Consumer lenders deal mostly in loans that are $10,000 or less to individuals who usually have a poor credit history. The government regulates the consumer loan industry through rates, fees, notice requirements and time duration of loans in order to protect the consumer. These loans have a maximum interest rate of 36 percent on the first $1000 and then a lower interest rate charged on each dollar over $1000. The result is a blended interest rate that is below 36 percent. Currently, consumer lenders are not making unsecured or revolving loans that are $1500 or less and issued for a short period of time, because of up-front administrative costs and lack of accumulated interest. Such small-dollar loans over a short period of time have a minimal amount of interest that is incurred. An example of this would be a 30-day $1000 loan, which would have $30 of interest incurred. Consumer lenders are not issuing these loans due to the administrative costs that take away from the interest made on the loan.
S.B. 1290 allows consumer lenders to cover some of the up-front costs by charging an origination fee at the time the loan is made. The origination fee is five percent of the total loan, but may not exceed $75.
There is no fiscal impact associated with S.B. 1290 according to Joint Legislative Budget Committee staff.
Provisions
1. Permits consumer loan lenders to charge origination fees up to five percent on closed end loans or revolving loans, not to exceed $75.
2. Prohibits a licensed consumer lender from charging a loan origination fee on the refinanced unsecured closed end loan for one year.
3. Restricts a licensed consumer lender from charging a loan origination fee on the renegotiated credit limit of a consumer revolving loan for one year.
4. Becomes effective on the general effective date.
Prepared by Senate Staff
February 6, 2001