Craig Harris had this interesting piece in Sunday’s Arizona Republic, Business Section (See the Comments section online, and related story, also from Harris, regarding the experience of a typical payday borrower.)

Under the threat of going out of business, payday-loan companies have spent nearly $11 million on Proposition 200 hoping to persuade voters to approve the measure next month.

“It’s about reforming the industry or ending the industry. That’s the heart of it,” said Stan Barnes, chairman of Yes on 200.

The measure would lower fees, stop costly loan extensions, create repayment plans and remove a provision in state law that would shutter the industry in 2010. But it also could make it a challenge for small businesses to operate payday-loan centers.

The backers of Proposition 200 say it’s needed to preserve one of the few resources for those who often can’t secure loans elsewhere, while critics say not enough reform is being offered by an industry that charges exorbitant fees to those struggling financially.

According to the No on 200 campaign, which is being outspent by nearly a 95-to-1 ratio, the proposition would allow payday lenders to still charge up to 391 percent in annual interest despite reduced fees.

“It’s a proposition drafted by the payday industry,” said Scott Earl, chief executive of the Arizona Credit Union League, which opposes the measure. “The fact that a group can come together and write its own law and pass it as reform and (that) the Legislature can’t touch it is just a frightening prospect.”

But Barnes said payday lenders, the only financial contributors to Yes on 200, had no choice but to fund the measure.

He said lawmakers have not changed a law passed in 2000 that created the industry but also has a provision that stops the licensing of payday lenders on July 1, 2010.

Some Arizonans already are having a tough time getting credit because of the nation’s economic problems, he said, and getting rid of payday lenders would make the situation worse.

He said the average payday-loan customer makes about $30,000 a year, and to get a loan, a borrower must prove he or she has a job and a checking account.

“It’s for people who don’t have cash to fix a problem,” Barnes said. Payday loans “are simple and cheaper than other options. . . . It’s cheaper than bouncing a check or having overdraft charges or paying a re-hookup fee for a utility.”

Proposition 200, if passed, would:
• Cap fees at $15 per $100 borrowed, compared with the current limit of $17.65 per $100 borrowed. The borrowing limit would remain at $500.
• Stop loan extensions. Currently, loans can be extended up to three times, with additional fees per extension.
• Create a repayment plan, at no additional cost, for periods up to four months.

Barnes said the measure likely would reduce the number of payday lenders because some businesses will not be able to operate with lower fees.

At the end of September, there were 640 payday-loan branches around the state, according to the Arizona Department of Financial Institutions. That’s up from 212 branches in 2001, a year after licensing began.

However, the number of branches has dropped from 715 in 2005 when

Michael Calhoun, president of the North Carolina-based Center for Responsible Lending, said even if there were fewer stores, the industry can’t exist unless there are repeat customers paying high interest rates.

“People don’t realize, once they step into this trap, it’s difficult to get out,” Calhoun said.

Barnes said Proposition 200 fixes much of the criticism leveled against the industry.

But he added that even though his organization has a huge financial advantage that has enabled it to finance numerous TV ads, he’s concerned about the outcome Nov. 4.

“When facts are on one side and fear is on the other, even if fear has no money to spend, fear has a way of moving voters,” Barnes said.