Today’s Republic Editorial:

The payday-loan industry is the subject of efforts in Congress aimed at fixing things that Arizonans recognized as problematic last November.

The challenge for members of the national Democratic majority – who have long claimed the mantle of consumer advocate – is to choose as wisely as Arizona voters did.

Democratic Rep. Luis Gutierrez’s House Bill 1214 is presented as a reform effort, but consumer advocates say it would be worse than the status quo.

In testifying before the House subcommittee on financial institutions and consumer credit in April, Jean Ann Fox, director of financial services for the Consumer Federation of America, said, “For the typical two-week payday-loan term, the fee authorized by HR 1214 translates to 391 percent APR (annual percentage rate).”

For a one-week loan, the rate would be 782 percent APR, she said.

What’s more, the Gutierrez bill could undermine state reform efforts by enshrining high interest rates at the federal level.

The bill is similar to the plan Arizona voters rejected in November as being “no reform at all,” said Fox, an Arizona resident. Arizonans turned down an effort by the payday-loan industry to extend an exemption in the state’s usury laws.

The exemption allows them to do business here, but it is scheduled to expire in 2010.

The industry-funded ballot proposition was backed by a nearly $15 million campaign that asked voters to extend the exemption indefinitely.

Voters sided with a low-budget opposition campaign that argued the payday-loan industry uses predatory practices to lock unsophisticated borrowers into crippling debt.

Some argue that payday lenders offer a service that consumers want and often need.

Yet the inherent problems with such high-interest loans are what led to laws against usury.

The payday-loan industry’s business model would be banned here if it weren’t for the exemption to Arizona’s usury law.

Gutierrez may call his bill the Payday Loan Reform Act, but it falls short of true reform.

Two other bills in Congress, Democratic Rep. Jackie Speier’s House Bill 1608 and Democratic Sen. Dick Durbin’s Senate Bill 500, cap interest and fees at 36 percent APR.

Such limits are not unprecedented.

In support of his bill, Durbin pointed out that Congress enacted a federal 36 percent cap for payday, car-title and tax-refund lending marketed to service members and their families in 2006.

Congress should consider whether all Americans deserve similar protections.

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