By Jim Small, Arizona Capitol Times – jim.small@azcapitoltimes.com
Published: December 22, 2009

Next year, the Arizona Legislature will decide whether to eliminate payday lending in the state, which presents a dilemma for Republican lawmakers who will have to decide between their free-enterprise beliefs and a moral objection to the large fees on short-term loans.

Lawmakers will have to weigh whether the service provided to Arizonans who seek quick access to cash is greater than the potential for borrowers to get locked into a cycle of debt.

But a core principle for most Republicans is an adherence to minimal government regulation and a market-based system that is self-regulating. In other words, bad products equal no business – no government intervention required.

To some, the choice is clear. But many others will have to make a choice between protecting consumers from themselves and allowing an industry to flourish at the expense of its customers.

Rep. Cecil Ash, a Mesa Republican, said his natural inclination is to find a way for the industry to remain legal, because doing otherwise would restrict the liberties of consumers. But, on the other hand, Ash said it’s clear that the fees charged for the loans are large enough to be a concern.

“I’m not sure at what point the interest rates become so bad that the state should tell them they can’t do it,” he said. “When you start telling people what they can’t do, I’m conflicted.”

Rep. Doris Goodale, a Kingman Republican, said the high fees for the loans are unconscionable, and she will oppose them, even though it goes against her desire to limit government intervention in the marketplace.

“I believe it becomes almost entrapment. It continues until it almost overwhelms people,” she said. “I’m very conflicted here, but I want consumers to be protected from high, exorbitant rates.”

In many ways, the 2010 legislative session will be the industry’s equivalent of a final appeal for pardon by a death-row inmate, as the execution date for the state’s 591 short-tem lending shops is set for July 1, when the laws that allow them to exist are set to expire.

After a crushing defeat at the polls in 2008, the industry is desperate enough to avoid extermination that it is offering to subject itself to “strict government regulations” it has opposed for years if lawmakers will agree to let them remain in Arizona.

The payday loan industry is hoping a package of reforms and increased government oversight will allay the fears of those skeptical of the industry and sway enough lawmakers to allow the lenders to stay in business permanently.

A summary of draft legislation provided by HighGround, a political consulting firm that was hired by the payday loan industry, details the regulations that lenders are willing to accept. Chief among them is a real-time database that verifies borrowers only have one loan at a time. As written now, state law restricts borrowers from taking out concurrent loans, but lenders must rely on the honesty of the borrower.

Other concessions the payday loan industry is willing to make include writing loan documents in easy-to-read English and Spanish; a two-day right of rescission on loans; providing all borrowers with a document touting credit counseling; creating a no-cost repayment plan borrowers can use once per year; and more scrutiny by the Arizona Department of Financial Institutions.

Not so long ago, payday loans seemed like a bad idea to Grant Woods.

The former state attorney general said he voted against last year’s ill-fated industry-run ballot proposition that would have repealed the sunset date on the lenders and enacted mild regulations. Nearly 60 percent of voters cast ballots against the measure.

But Woods said he was persuaded to work for payday lenders after he looked at reforms proposed in other states and industry leaders said they would be willing to adopt them in Arizona, if it meant they could keep their doors open. He said he conducted a series of meetings recently with various community and political groups spanning both the political spectrum and the state on behalf of the payday loan industry.

“I think there’s a consensus that these are good reforms, especially now that the main piece – a database – has been filled in,” he said.

The regulations are stricter than those rejected by voters at the ballot last year. The ballot measure was aimed at eliminating the practice of “rolling over” loans to extend them and created a once-yearly repayment plan, but didn’t include a database or any reporting requirements.

Even so, the new plan doesn’t ease the trepidation of some lawmakers.

Rep. Frank Antenori, a Tucson Republican, said he has seen the firsthand the effects payday loans have on people. He draws on experiences during his time in the U.S. Army, which has since banned soldiers from using the loans.

“I’ve seen the disregard the industry has for the personal impact it has on people,” he said.

Although Marian McClure is no longer an elected official, she plans to wander Capitol hallways during the upcoming legislative session working to make sure the payday loan industry isn’t allowed to continue operating in Arizona. The Tucson Republican led the charge against the lenders during her eight years as a state representative.

“We’ve all seen what predatory lending has done to the housing market. In my mind, there really is no difference,” she said. “If we want to have a viable economy, we have to get rid of people who rip other people off.”

In 2007, when [Republican] Rep. Bill Konopnicki was chair of the House’s Financial Institutions and Insurance Committee, he worked with McClure and the industry to hammer out a deal. But that agreement ultimately fell apart when the lenders balked at some of the regulations they are now proposing.

“I think what the voters turned down was payday loans. I don’t think they cared about the details,” said Konopnicki, a Safford Republican.

One thing working in the industry’s favor may, in fact, be the state’s free-falling tax revenues. While there is the possibility the reform efforts will get lost in the legislative shuffle as lawmakers scramble to erase billions of dollars of red ink in the state budget, the dissolution of an entire industry – even one that isn’t well-liked by the public – may not be on the wish-list of many legislators.

“I don’t see a decision to outlaw a whole industry as being helpful to the economy,” said Rep. Nancy Barto, a Phoenix Republican. “I’m not so sure that letting a whole industry sunset because they don’t like the look of a building on the street corner is a good idea.”

The 591 payday lenders have about 5,000 employees and pay about $85 million annually in taxes, said Lee Miller, a lobbyist for the industry.

“If you shut the doors, that’s probably 4,995 people who are going to become instantly unemployed,” he said. “The state doesn’t need 4,995 people instantly needed government services.”

Eliminating the lenders won’t eliminate the need for these loans, Miller said.

However, critics say people got along just fine before payday lending was authorized in 2000. They were able to turn to friends or family for short-term help, or just prioritize their spending.

Although Antenori generally supports free-market principles, he said this is one area where the government has the responsibility to protect its citizens. One solution would be to allow banks and credit unions to enter the short-term lending arena more easily, he said.

Already, banks such as Wells Fargo allow customers to borrow up to $500, at 10 percent interest, for up to 30 days.

“I think the state needs to look at ways of giving financial institutions the ability to offer micro-loans,” he said.

Other lawmakers, though, say everything is working out just fine.

Rep. Michele Reagan, a Scottsdale Republican and chair of the House Commerce Committee, said she supports the plan to allow the industry to continue operating.

“They’re providing a service that people seem to enjoy,” she said. “It doesn’t seem like a rip-off to me.”

[EDITOR'S NOTE: REP. MICHELE REAGAN REPRESENTS LEGISLATIVE DISTRICT 8, IN WHICH 61% OF VOTERS REJECTED THE PAYDAY INDUSTRY ON THE 2008 BALLOT]

The industry’s fate now hinges on how the Legislature perceives what the lenders do. There’s little doubt it will face an uphill climb, after last year’s election loss and a public perception the lenders prey on the ignorant.

Rep. Steve Farley, a Tucson Democrat, said the draft proposal for widespread regulation is too little, too late. He said the industry is getting desperate to stay alive.

“It’s too bad that they weren’t willing to do this when we were willing to work with them,” he said.

To post a comment on this article, at AZCapitolTimes.com, click here.

By Peg Harmon, CEO of Catholic Community Services of Southern Arizona, in today’s Daily Star:

For the working poor — those who take tremendous pride in earning a modest living for their families — the holiday season brings a heightened risk of financial shortfalls. Every family hopes for a joyous holiday season, including gifts for their children.

Friends,

As you’ve heard, the payday lenders are already gearing up for a knock-down, drag-out fight for their survival this session.   As opponents to their 400% interest rates, we must stand up to ensure the sun sets on their outrageous rates on July 1^st!

Working together, we can maintain the 2010 Payday Loan Sunset, making this the last Holiday Season that Arizona families have to contend with these predatory lenders.

So, this Holiday Season, our wish is that our state leaders will respect the voters’ wishes: The Sun Must Set on 400%!

Business and civic leaders of all political parties, from across the state, have condemned the payday lenders’ 400% interest rates.  Furthermore, they have stated clearly that they heard the voters’ overwhelming disapproval for payday lenders.

But unfortunately, Governor Brewer and some in the Legislature apparently haven’t gotten the message.

Tell your elected leaders:  “This New Year, the Sun Must Set on 400%!”

By Christmas next year, hundreds of thousands of Arizonans currently caught in the payday loan debt trap will be free – if we uphold the 2010 Sunset.  Without predatory interest rates keeping them down, more Arizonans will have money to spend on gifts for their loved ones and holiday cheer.

AARP Arizona has called on the governor to veto any bill which would overturn the will of the voters. View their letter on our home page, or click here to download it.

Also, Attorney General Terry Goddard is going after one of the largest payday lenders for their unscrupulous collections practices in Arizona, in addition to strongly supporting the 2010 sunset on 400% interest rates.

We won at the ballot box in 2008, and we can win again at the Legislature this year.  But, it’s going to take all of us!

We must make sure our legislators and the governor know: it is time to finally STOP the payday lenders from stripping over $150 million a year from hard working Arizonans.

Join me in telling our leaders:  “This New Year, the Sun Must Set on 400%!”

And if you’d like to donate to the cause, either online or through the mail, click here.

You and I both know that 400% interest is unacceptable.  This year, working together, we can bring it to an end!

Thank you for all you have done, and for all you will do.

Happy Holidays!  See you in 2010!

Sen. Debbie McCune Davis

Arizonans for Responsible Lending

PS:  Payday lenders are out there right now marketing their loans as a way to get through the holidays.  But rather than a short-term fix, as they advertise, they’re just a long-term debt trap.

Nationally, more than 75% of payday borrowers have to take out a new loan within two weeks of their first loan, in order to fill the large gap the payday loan creates in their family budget.  See 2009 research report, Phantom Demand, here.

Then Take Action, Today!

Paid for by Arizonans for Responsible Lending

www.NoMoreLoanSharks.com

By Lionel Waxman, Inside Tucson Business:

MY OPINION: The people have spoken

It infuriates credit card holders when the interest rate on balances gets jacked up to 30 percent. It was a similar fury that motivated Arizona voters in November 2008 to force payday lenders out of the state by the end of June 2010. The measure was passed by a 3-to-1 margin.  [sic.]  [NOTE: The measure, sponsored by the payday lenders, was defeated by the voters.  Had it been successful, it would have allowed the lenders to wipe out the 2010 sunset date and charge triple-digit interest rates indefinitely.]

Payday lenders charge upwards of 450 percent. Make your blood boil? Well, I should say. Makes your credit card issuer look downright benevolent, doesn’t it?

The legislation that let the scoundrels into the state in the first place had a 10-year lifespan when it was passed in 2000. Now, the few months they have to pack up shop and steal away into the night is being used to lobby for proposals for slight concessions that voters rejected last year. Reportedly, Gov. Jan Brewer is willing to listen to the payday lenders regardless of what voters said.

In exchange for their right to keep sucking the blood of Arizonans, payday lenders have offered a package of reforms that includes:

• A slight lowering of the interest rate on their loans — like from a confiscatory rate of 450 percent to a downright humanitarian rate of 391 percent.

• A ban on roll-overs — which, contrary to popular belief, is not a program in which the lender traps the borrower in his car and rolls it over.

• An interest-free repayment plan for those who just cannot make good on the bad checks they had to issue to get the loans.

• Wearing of strong perfume 24/7 to disguise the putrid odor of their business.

Except for the perfume, this is essentially the same proposal voters rejected. It is about the same proposal their industry spent almost $15 million on to try to sell it to the voters to no avail.

But Brewer has no trouble with the proposal. She says she sees no conflict. Apparently the will of the voters is irrelevant to her.

It remains to be seen how the new effort will be interpreted by the legislators. If state government sees no trouble in overturning the expressed wishes of the voters, then the initiative process should be terminated as a fraud. Why spend money and time organizing an initiative only to have it overturned by state officials?

On the other hand — you knew that was coming, didn’t you? — the payday loan industry did spend nearly $15 million trying to bamboozle Arizona voters. If we had any assurance of the money being spent entirely in this state, I would say maybe we need businesses willing to spend big money here for anything. Maybe we should overlook how they got this money.

Businesses that can throw around $15 million don’t grow on trees these days. That much money can be said to save or create 300 jobs. Good paying jobs. Jobs working families need. Jobs screwing fellow Arizonans who were not astute enough to get jobs working on behalf of a bunch of out-of-town jaspers financially raping their neighbors.

Hey, it’s the voters’ fault. They styled their initiative as a mere law. Maybe if they wanted the governor and the legislature to take it seriously, they should have made their initiative a constitutional amendment. Otherwise, they think the voters are just kidding around.

Seriously folks, in 1998 the voters of Arizona used the initiative process to enact the Voter’s Protection Act. This changed the state constitution in three significant ways:

1. It prohibits the governor from vetoing any citizen-approved measure.

2. It prohibits the Legislature from repealing such measures.

3. It permits the Legislature to amend a citizen-approved measure only if the amendment furthers the purpose of the citizen measure and passes by a three-fourths majority.

Essentially, this makes citizen-approved measurers virtually unalterable except by a subsequent vote of the people.

So relax. No matter how much money payday lenders throw around, no matter how Brewer feels about it, regardless of the feelings of the legislature, this effort by the payday lenders is doomed.

Contact Lionel Waxman at territorial@waxmanmedia.com or visit his website: www.newflashpoint.com. Copyright © 2009 Inside Tucson Business

[NOTE:  While Arizonans for Responsible Lending appreciates the stance taken by Mr. Waxman -- and the attention paid this issue by Inside Tucson Business -- the conclusion he reaches at the end is incorrect.  This is not a case in which the voters created or amended a law with an affirmative vote at the ballot box.  If that were the case, the Voter Protection Act would in fact hold sway, and we'd be out of the woods.

In this case, however, the voters rejected an attempt by the payday lenders to amend the law.  By doing so, the voters maintained the status quo, including the July 1, 2010 Sunset date in the law authorizing payday lending in Arizona.

While the will of the voters is clear, there is nothing in statute that protects the outcome of the vote.

The industry CAN STILL REMOVE THE 2010 SUNSET it faces, by getting legislation approved with 16 votes in the Senate and 31 votes in the House, and signed by the Governor.

That's why we must continue to FIGHT BACK and DEFEAT any legislation they run.]

To add your comments to the story in Inside Tucson Business, click here.

AP Report, in Mohave Daily News:

PHOENIX – Arizona authorities are accusing a major payday loan company of engaging in deceptive practices by filing collections lawsuits in courts far from where debtors live or took out the loans.

Quik Cash and its parent company, QC Holdings Inc. of Overland Park, Kan., are defendants in a lawsuit filed Friday in Pima County Superior Court in Tucson by the Attorney General’s Office.

The lawsuit contends Quik Cash promised lenders in the past three years that it would follow Arizona law.

However, the company filed hundreds of collections suits in Pima County against nonresidents even though state law requires that the small-claims suits to be filed either where a defendant lives or took out a loan, the lawsuit said.

That reduced collections costs for the company while making it easier for the company to obtain default judgments and wage garnishments because it’s harder for defendants who live elsewhere to contest the suits, the state’s lawsuit said.

‘‘For rural customers, this is a difficult and onerous burden,” the suit said.

Quik Cash even sued Nevada customers in Pima County, which is located in southern Arizona, though the customers obtained their loans some 300 miles away in Bullhead City, near the Nevada border in Arizona’s Mohave County, the suit said.

Arizona Attorney General Terry Goddard said the company’s practices set up ‘‘a veritable assembly line of default judgments” that made a mockery of the court system.

QC Holdings spokesman Tom Linafelt responded to the suit by saying Quik Cash tries to comply with Arizona law and was unaware of the ‘‘administrative issue.” He said the company will cooperate with the state and was investigating the matter.

In Tucson, with the acquiescence of lawyers for QC Holdings, a judge on Friday granted the attorney general’s request for a preliminary injunction barring the company from filing lawsuits in the wrong courts or pressing cases already filed in the wrong courts.

The lawsuit seeks up to $5 million in restitution, asks the court to set aside hundreds of court judgments against Arizona payday loan borrowers and seeks to stop the company from doing business in Arizona.

QC Holdings said on its Web site that it operates 563 branches in 24 states, lending nearly $1.4 billion to customers.

Tri-State Online // Mohave Daily News

2435 Miracle Mile / Bullhead City, Arizona 86442-7311 / 928-763-2505
Last updated: Sunday, December 06, 2009

To see the article at the Arizona Republic, and add your comments, click here.

To see the article at Mohave Daily News, click here.

To see original A.P. report by Paul Davenport, click here.

Capitol Media Services report, in the AZ Daily Star:

Company’s collection policy toward borrowers at issue

In the East Valley Tribune:

The Arizona Attorney General’s Office filed suit Friday against a major payday lender, accusing the firm of collection practices designed to defraud hundreds of borrowers – especially those living in rural areas.

According to the lawsuit, Quik Cash has engaged in “a widespread deceptive pattern” of filing suit against those who default on their payday loans in Pima County justice courts, “far from where the consumers lived or where the loans occurred.”

In his filing, Assistant Attorney General Vince Rabago said the company promises its borrowers that their contracts will be “governed by Arizona law.”

“But the company then repeatedly and knowingly violates Arizona law by suing hundreds of customers in an improper court venue – the justice courts of Pima County – thus depriving Arizonans throughout the state of their legal privilege to have the lender file the case in a local justice court near them,” he wrote.

Rabago said this does more than make it more expensive for borrowers to fight the lawsuits. He said it makes it more likely that a borrower will not respond to the lawsuit because the cost of fighting it in Pima County – or even hiring an attorney to ask that the case be moved locally – makes no sense given that the amounts of money involved are so small, “effectively depriving consumers of having their day in local court.”

In fact, Rabago said, Quik Cash files not only default judgments but also wage garnishments “in the same distant venue.”

Late Friday, Pima County Superior Court Judge Kenneth Lee issued a preliminary injunction barring the company from filing collections cases in courts away from where the borrowers live or where the loans were made. Rabago said that injunction, which company attorneys agreed to, remains in place until there is a trial.

The state’s lawsuit asks a court to set aside the judgments Quik Cash got against rural residents and reimburse borrowers anything the firm collected through the improper methods. The state also wants $10,000 for each violation, a figure Rabago said already tops $5 million.

Tom Linafelt, spokesman for QC Holdings Companies, the parent firm of Quik Cash, said it has always sought to comply with Arizona law and was “unaware of this administrative issue.” He said his company is both cooperating with the Attorney General’s Office and launching its own internal inquiry.

The allegations come at a politically disadvantageous time for the payday loan industry.

Payday loan companies are trying to convince lawmakers to approve legislation – and Gov. Jan Brewer to sign it – to allow their operations to continue in Arizona beyond June 30. This is their last chance: Prior legislative efforts have fallen short and voters last year rejected an industry-financed initiative by a 3-2 margin.

This lawsuit, however, does not claim that payday lending itself is fraudulent. Instead, Rabago said, the company has instituted “aggressive new collection initiatives and strategies” following several years of losses and decreases in collections.

Rabago specifically charged that it was the company’s “deceptive collection litigation” in Arizona that helped reduce its losses or turn around its collections rates.

The payday loan industry operates by providing short-term loans of up to $500 for fees that can range up to $17.65 for each $100 borrowed.

Someone who wants to borrow $500 writes out a check for $588.25. That person gets the $500 in cash and the lender promises not to try to cash the check for two weeks.

The collection process occurs when a borrower doesn’t have the money at the end of that time to make the check good.

Attorney General Terry Goddard campaigned against the initiative, saying Arizona should not allow payday lending to continue in the state. He said borrowers get “caught in a cycle of indebtedness” when they cannot pay off their short-term loans and have to take out new ones, paying additional fees.

From Capitol Media Services, in today’s Daily Star:

In the Arizona Republic, 12/4/09:

I had considered a personal letter to Gov. Jan Brewer on her apparent support of payday-loan legislation but have chosen an open letter as, hopefully, more effective.

Gov. Brewer, last year, 1.2 million Arizonans said “no” to payday loans beyond sunset expiration in July 2010.

If you choose to support legislation that would continue such loans beyond next July, my firm belief is that the voters will say “no” to any re-election bid you may choose to make.

In my view, this single issue will dictate your political future – simple as that.

- Gary H. Boyd, Scottsdale