AZ Daily Sun: Payday loan campaign a shameful exercise in direct democracy
Today, the Arizona Daily Sun in Flagstaff came out STRONGLY against Prop 200. Check it out:
Voters should soundly reject Prop. 200 and send the issue back to the Legislature for true reform.
It’s not uncommon for an industry to wrap itself in the mantle of reform to try to convince voters it is on their side.
But Prop. 200 is a particularly brazen case. Lobbyists for the payday loan industry couldn’t convince the Legislature to allow them to continue to charge 400 percent interest, so it is going directly to voters via an initiative. The industry has rightly concluded that if it told voters what it is up to, Prop. 200 wouldn’t stand a chance. Under Arizona law, interest on consumer credit is capped at an annual rate of 36 percent. The payday loan industry received an exemption in 2000 — but only until 2010.
To grant an extension, lawmakers wanted major reforms, citing reports that some payday loan offices had been lending money at rates as high as 459 percent a year on a two-week advance. Compromise talks broke down when lawmakers insisted on much lower rates and full, written disclosure to customers of just how costly their loans were going to be.
The industry contends that many low-wage workers can’t get credit and don’t have enough savings in case of emergency. But as part of their “reform” package, Prop. 200 only lowers the maximum rate to 391 percent – a fact that appears nowhere in the industry’s $12 million advertising campaign.
How generous. So instead of the average payday loan customer paying $800 on a $300 advance, the cost will be $750.
Another practice that lawmakers wanted to eliminate was the indefinite rollover of previous cash advances. That has meant some customers never pay off loans and eventually wind up in personal bankruptcy.
So the industry has proposed in Prop. 200 to establish a one- day cooling off period between the payoff of a previous loan and the start of a new one. Not revealed in the ads is that 90 percent of customers already take out a new loan as soon as an old one is paid off. A one-day timeout isn’t likely to change that habit.
Some might question why consumer debt should be regulated at all. The answer can be found in the recent subprime mortgage meltdown, which allowed lenders to prey on the ignorance of unqualified low-income borrowers with payback schemes whose implications, it turns out, not even the lenders fully understood.
The same can be said about the payday loan industry, which has not only exploited the ignorance of borrowers but now is attempting to hoodwink voters. It is a shameful abuse of direct democracy that voters should soundly reject by voting no on Prop. 200. If the industry can’t gain a compromise in the Legislature next year that allows it to survive, then maybe it shouldn’t.