Lawmaker tries to keep payday loans
By Howard Fischer, Capitol Media Services
Despite public vote, House whip pushes to void the July 1 ban
House Majority Whip Andy Tobin, R-Paulden, said he is concerned about the 3,000 people who work in the industry who will be out of a job on July 1 unless the law is changed to continue to allow the short-term, high-interest loans.
He also said there is an apparent need for the loans, and the state should not tell businesses they can’t operate or restrict consumers’ access to loans.
Both include:
• Allowing lenders to charge up to $15 for every $100 borrowed, which translates to an effective annual interest rate of about 390 percent.
• Repealing an existing law that allows unpaid loans to be “rolled over” up to three times for an additional fee.
• Banning lenders from charging borrowers more than twice for the same bounced check.
• Giving borrowers who can’t repay the money at the end of the loan a payment plan, without interest, to come up with the money.
There are differences from the failed 2008 ballot measure, however. Tobin’s HB 2161 would:
• Require lenders to use a “commercially reasonable method” to verify an that applicant for a new payday loan does not already have an outstanding loan somewhere else.
• Require lenders to report the total number and amount of loans and average annual percentage rate to the state. Only aggregate numbers from all lenders would be made public, however.
Before 2000, loans with annual interest rates of more than 36 percent were illegal. That year, industry lobbyists persuaded lawmakers to approve what are technically called “deferred-presentment transactions.”
In essence, a borrower writes out a check for up to $500 plus a fee, a check that both parties know is not good. The lender advances the money, minus the fee, with a promise not to cash it for a fixed period, usually up to two weeks.
But lawmakers, cautious about the new loans, agreed to only a temporary trial: The legal exemption from the 36 percent interest cap expires on June 30. The 2008 industry-sponsored measure would have made the exemption permanent.
Rep. Michele Reagan, R-Scottsdale, said voters may not have fully understood the issue.
She said the fees seem incredibly high when translated into what is an “astronomical” triple-digit annual percentage rate. Reagan said that’s the wrong way to look at it.
“It costs more to bounce a check,” she said. “So if you need a bag of groceries and the two options are go to write a bad check or go to one of these places, it’s actually a benefit and cheaper” to borrow from a payday lender.
But Rep. Frank Antenori, R-Tucson, said he wants the industry to go away.
“They relentlessly get you into a cycle of having to come in, renew your loans, pay the fees,” Antenori explained. “It buries people.”
He said the fact HB 2161 would not permit loan “rollovers” does not make it acceptable.
“I would rather find a way to work with banks and credit unions to find a way to provide high-risk, short-term loans with a reasonable interest rate,” Antenori said. He defined such loans as less than 40 percent interest a year, with a requirement for anyone who takes one of these loans to complete a financial literacy course.
However, Rep. Cecil Ash, R-Mesa, said he has no problem with the loans if borrowers understand upfront the costs involved.
“There’s obviously a need that is being filled by these stores,” he said. Ash said he fears that if payday lending is made illegal, those who need small amounts of money will find ways of getting it, whether through unregulated loan sharks or by hitting up relatives.
“And I’d rather have a store giving it to them than me,” Ash said.
Tobin has an uphill battle: For the law to take effect by June 30 — the last day payday lenders can legally operate in Arizona — he needs the votes of two-thirds of both the House and Senate.
That means he needs Democratic support. And most Democrats, including Attorney General Terry Goddard, want the industry out of Arizona.
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