Consumer advocates got a win Tuesday in Arizona, with voters approving a measure that will lower the interest rates on medical debt and increase borrower protections from debt collectors.
The measure, Proposition 209, passed by an overwhelming margin. It had support from 72% of voters with more than two-thirds of ballots counted, according to unofficial results.
Industry groups have opposed the measure, saying the debt collection provisions will restrict access to credit by making it more expensive for banks and other lenders to make loans.
"It's going to make credit less accessible — to what degree, I guess we'll have to wait and see," Paul Hickman, president and CEO of the Arizona Bankers Association, said in an interview after the election.
The ballot measure will make it riskier for banks to issue credit cards, auto loans, home equity loans and other types of consumer debt, Hickman argued.
But consumer advocates say the measure will ease the burden of medical debt on Arizonans and shield critical assets such as houses and cars from debt collectors. Those protections, they say, will help avoid major disruptions in people's lives so that they can keep driving to work and earning income to pay their debts.
The limits will help Arizonans avoid a "horrible cycle" of debt, which has made people "less likely to get care and less likely to pay their bills" in full, said 33-year-old Arizona resident Liz Gorski, who's part of the Healthcare Rising Arizona group that led the ballot initiative.
Gorksi said she struggles with medical debt, due to a car accident at age 15 that put her in a days-long coma and resulted in lifelong medical complications.
Gorski said she has spent her entire adult life battling with debt collectors. Her credit score made her ineligible to buy a house without the help of Habitat for Humanity, and she still pays high interest rates for any type of credit, she said. She expressed concern that her daughter will skip doctors' visits after watching her struggle with medical debt.
The Arizona initiative will lower the maximum annual interest rate allowed on medical debt from 10% to 3%. The debt-collection protections cover all kinds of credit — not just medical debt — and increase the value of assets that can be exempted from the debt collection process. Supporters say that provision is critical at a time of rising house prices and auto values.
A person's home equity of up to $400,000 will be protected from creditors, up from the current exemption level of $250,000, according to a fact sheet from Healthcare Rising. The protections for vehicles will rise to $15,000, up from $6,000, and disabled drivers will have a higher exemption amount. The measure makes annual adjustments for inflation starting in 2024.
It also lowers the share of borrowers' wages that lenders can garnish. The current limit is 25%, but that percentage will decrease to 10% for many consumers, and to 5% for those dealing with extreme economic hardship.
Banks that do business in Arizona will have to weigh the updated rules when they price a loan and account for its default risk, said Allen Denson, a partner at the law firm Stroock & Stroock & Lavan who represents consumer lenders.
Lenders will also have to adjust their procedures to ensure they're complying with the state's new rules, Denson said, noting that regulators are increasingly monitoring banks' compliance with different states' wage garnishment rules.
"It is a source of increased risk," Denson said.
In May, the Consumer Financial Protection Bureau
The Association of Credit and Collection Professionals, a trade group that represents debt collectors, said the measure will harm those it's intended to help by making credit less available and more expensive.
"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.
He said that the measure's supporters depicted it to voters as a way to address high medical debt, even though it affects all types of consumer debt.
Asked about that criticism, Healthcare Rising Arizona said medical debt is a
About 12% of adults in Arizona with a credit history have medical debt in collections, a figure that climbs to 16% in communities of color,
