Arizona Voters Approve New Limits on Consumer Debt Collection

Nov 16, 2022Federal Regulation, News

In last week’s elections, Arizona voters approved Proposition 209, a measure that will lower interest rates on medical debt and raise borrower protections from debt collectors. Although the measure had support from 72 percent of voters, industry groups opposed it, saying it makes it more expensive for lenders to make loans and restricts consumer access to credit.

“This overly broad, one-size-fits-all approach without any consideration of a consumer’s needs, or their unique financial situation, will have long-term unintended consequences on Arizona’s credit-based economy,” said Andrew Madden, vice president at ACA International, according to American Banker.

The initiative will lower the maximum annual interest rate permitted on medical debt from 10 percent to 3 percent. It will also lower the share of wages that lenders can garnish from 25 percent to 10 percent for most consumers, and 5 percent for consumers grappling with extreme economic hardship.

Supporters say the ballot measure will ease the burden of medical debt for Arizona consumers, as well as protect essential assets like cars and houses from debt collection. It will also help Arizonans avoid debt cycles that have made people “less likely to get care and less likely to pay their bills,” according to Liz Gorski, a 33-year-old Arizona resident and part of the Healthcare Rising Arizona group that started the initiative.

Alternatively, the initiative may make it riskier for banks and other lenders to issue credit cards, home equity loans, auto loans, and other types of consumer debt. Since regulators are increasingly monitoring banks’ compliance with wage garnishment rules, lenders may have to change some of their procedures.

Though the measure affects all types of consumer debt, Healthcare Rising Arizona said that medical debt is a key driving force in bankruptcy filings and prohibits consumers from paying off other types of debt. According to Urban Institute data, nearly 12 percent of Arizona adults with a credit history have a medical debt in collections.

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