Public News Service reports:

PHOENIX – Payday loans with interest rates topping 400 percent become illegal in Arizona at midnight Wednesday, after voters rejected a 2008 ballot measure to extend the industry’s 10-year authorization to operate.

State Senator Debbie McCune-Davis of Phoenix helped defeat last-ditch efforts to reverse the election results in the legislature.

“Voters were given the opportunity to make a decision about whether payday lenders continue to operate at outrageously high interest rates or change their practices to come under the 36 percent usury law. The voters were very clear about it, and now it’s happening.”

McCune-Davis calls ending payday loans “a victory for the people of Arizona.” Payday lenders say they can’t cover operating costs with a 36 percent rate cap, and several payday loan stores have already closed.

Lenders say they were providing a necessary service, but McCune-Davis says people have other options for small, short-term loans.

“We would recommend credit unions. We would recommend charities. We would recommend short-term borrowing from a family member who will not gouge you.”

She says many credit unions offer low-dollar loans at interest rates of 12 to 18 percent.

McCune-Davis says most of the business for payday lenders involves making new loans to pay off old loans, with fees added for each transaction.

“When payday lenders aren’t on street corners with neon lights and open 24 hours a day, people will go to legitimate lending institutions or to people who can help them. And they will get solutions to their financial problems that don’t leave them deeper in debt.”

At the peak of payday lending business, there were 715 loan stores in Arizona.

Doug Ramsey, Public News Service – AZ

Kingman Daily Miner reports:

Some stores will offer different services

KINGMAN – The clock is ticking for payday loan businesses in Kingman. With less than 48 hours to go before the law allowing them to do business expires, payday loan stores, both big and small, are preparing for a seismic shift in their business models.

The stores have been facing their demise all year, following failed attempts to woo voters and state lawmakers into extending the 2000 law that allowed them to charge upwards of 390-percent interest on small monetary loans. The law expires July 1, giving payday customers until Wednesday to either settle their accounts or face collection agencies.

For most major payday loan chains, such as the 1 Stop Check Cashing Payday and Title Loans at 3505 Stockton Hill Road, the loss of payday loans will not necessarily mean the end of business. 1 Stop is among several chains that plan to simply phase payday loans out of their model and turn to other services such as auto title loans, money orders and vehicle registrations.

But that hasn’t been the case for one major chain. Check ‘n Go stopped offering payday loans last month and has since announced the closure of all 34 of its Arizona locations by the end of summer. According to one employee, the local Check ‘n Go at 1949 Beverly Ave. is scheduled to close as early as the end of this week, following at least a dozen other locations around the state that have already closed this month alone.

In an interview with the Arizona Republic earlier this month, Check ‘n Go spokesman John Rabenold said the 36-percent interest rate cap imposed by the law’s expiration would simply make it impossible for payday stores to continue offering their product and still expect to survive financially. The same also goes for smaller, independently-owned payday stores, which are now considering other options, including following Check ‘n Go out of the state.

Dick Stephens of B-4 Payday is one of those independent owners. Stephens said he already closed his Kingman store at 3880 Stockton Hill Road on June 5, and plans to shutter his Bullhead City location after Wednesday. He said he plans to reopen his store by the end of next month in Laughlin, where Arizona’s new payday lending restrictions won’t apply. But he anticipated the move would not come without a cost, with the driving distance alienating a large percentage of his customer base.

“I’m assuming I’ll lose probably 60 percent of my business from Kingman,” Stephens said.

Stephens estimated he has serviced about 1,000 customers between Kingman and Bullhead City, the majority of them senior citizens on fixed incomes and lower-wage families trying to make ends meet.

“Most of our clientele is either retired seniors or working people who go week to week,” he said, adding that most of those clients have been scrambling to pay off their outstanding loans before the Arizona law expires. “It hasn’t been too bad. We’ve had a few problems, probably 5 percent of our clients have had trouble paying us off. But Terry Goddard’s been treating us like criminals, sending out warning letters threatening us with $20,000 fines if we do a loan past July 1.”

Attorney General Goddard has been among the state’s most vocal champions in favor of abolishing the payday loan industry, arguing that its sky-high interest rates and appeals to those already in precarious financial straits have done more harm than good to Arizona’s most vulnerable citizens over the past decade. As the payday law’s sunset date draws closer, Goddard, himself a Democratic candidate for governor, has launched a high-profile enforcement campaign dubbed “Operation Sunset” aimed at ensuring remaining lenders adhere to the ban on consumer loans that exceed the state’s annual percentage rate limit.

“I will use every tool at my disposal to enforce the end of exorbitant payday loans in Arizona and seek fines and penalties against those who try to continue this abusive practice,” Goddard said in a statement June 9. “I encourage citizens to report violations to our office. Our enforcement will be swift and aggressive.”

Goddard has named auto loans, prepaid debit cards and online accounts as among the alternatives payday lenders have used to skirt the laws in other states that have outlawed the stores. One part of “Operation Sunset,” he said, will be to ensure these same practices don’t take hold in Arizona.

That’s been the experience for at least one local payday employee who preferred not to be named for this story. According to the employee, the lender she works at assured its customers they would be able to set up online accounts following the law’s sunset, only to receive a letter from Goddard’s office demanding they cease the practice. According to Goddard, as of Thursday, no business will be able to make payday loans over the Internet to Arizona customers, regardless of where that business itself is located.

At the same time, however, the payday employee said many customers are still seemingly unaware that the law is about to expire. In fact, customers are still coming in to attempt to renew their loans, and new customers are even coming in to seek first-time loans, not realizing the practice has all but ceased here.

But for all the short-term pain and confusion the sunset is likely to cause regular payday customers, advocates in favor of their abolition argue that the move will ultimately help pave the way for more traditional lending institutions to bridge the gap.

“I’m a believer that the market does address supply and demand pretty well on its own,” said David Higuera, political director for Arizonans for Responsible Lending, a 527 political action committee devoted to ending the payday practice. “The playing field right now is so uneven, it might as well be a wall, because payday lenders are operating under a completely different statute that only applies to them. It’s an attack on the free market, different rules for different lenders.”

With paydays gone, however, Higuera said traditional lenders are more likely to be willing to work with smaller, shorter-term loans, even though they may never be quite as flexible as the unsecured payday loans could afford to be. But even that may not necessarily be a bad thing.

“Payday lenders will always say they’re filling a need for short-term loans,” Higuera said.

“Research that’s been done nationally shows that 76 percent of payday loan volume nationally is based on churned loans to repeat borrowers. What that says to me is there is not the demand they want you to believe – the ‘demand’ is there because people are already beholden to them.”

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Arizona Daily Star reports:

Arizona Daily Star Sunday Front Page:

Arizona Republic reports:

The boom era for Arizona payday lenders, which offered quick, easy cash but charged extremely high interest rates, is coming to a close.

Starting Thursday, the state no longer will allow payday-loan operators to set interest rates as high as 460 percent annually. A 10-year-old law that allowed them to charge above the 36 percent annual rate cap imposed on other lenders, such as banks, will expire.

Voters and lawmakers have refused to extend the law, and those in the payday-loan industry have said they can’t stay in business with the lower rate.

Some stores already have shut their doors, and an industry spokesman said more will follow. Payday lenders left in droves from other states that have imposed similar caps.

“What you are going to see is the smaller operators with one, two or three stores will close,” said Lee Miller, a spokesman for Arizona Consumer Financial Services, a trade group that represents payday lenders. “The large companies are looking around and trying to find new products to meet the credit needs of Arizona consumers.”

Miller said that to stay in business, many payday lenders likely will offer auto-title loans, which can generate annual returns of up to 204 percent, according to state law. The Center for Responsible Lending said more than 200 payday stores in Arizona have received auto-title loan licenses in the past two years, as it became more apparent payday licensing would end. Some payday lenders also will continue to offer check-cashing services.

But some large businesses are just throwing in the towel.

Check ‘n Go, licensed under Southwestern & Pacific Specialty Finance Inc. in Cincinnati, stopped offering payday-loan services a month ago in Arizona and began closing 11 of its 34 stores on June 12. The company, which has 102 Arizona employees, plans to close all stores by the end of summer.

“For those (payday stores) who abide by the law, you can’t make it on the 36 percent annual percentage rate,” said John Rabenold, a Check ‘n Go spokesman. “It’s sad. It really is. There were a lot of good employees, and a lot of good consumers who need to use them but will not have the option from regulated brick-and-mortar stores.”

Rabenold said a few remaining stores will remain open to collect outstanding loans after the law that created payday-loan licenses expires Wednesday. The licenses are what allowed lenders to exceed the 36 percent rate cap.

Arizona will become the 16th state to impose an interest-rate cap on payday loans, according to the Center for Responsible Lending in Durham, N.C., which tracks payday-loan operations across the country. At least six other states are looking at imposing restrictions.

Arizona Attorney General Terry Goddard has pledged to go after payday lenders who do not abide by the new interest-rate cap.

“They are terrible loans,” said Susan Lupton, a senior policy associate for the Center for Responsible Lending, a non-profit research and policy organization. “They are absolutely awful. There has not been a new state that has authorized payday lending in years, and states are continually looking at ways to cut down shops or get rid of payday lenders altogether.”

Lending history

Payday lending began in Arizona in 2000, following intense lobbying by the industry. The Legislature created a “deferred presentment licensing program” that allowed payday lenders to charge huge interest rates. The licensing was to last 10 years, unless lawmakers made it permanent.

But as hundreds of stores began cropping up across the state, criticism of payday loans mounted. Opponents said payday loans trapped poor consumers in debt, leaving borrowers with less disposable income after making high interest payments.

With the licensing expiration date approaching, the industry in 2008 asked voters to approve a ballot measure that would have allowed payday lenders to stay in business with some new restrictions. Despite the industry spending more than $14 million on the measure, voters resoundingly decided to end payday licensing. Over the past two years, lawmakers also refused to extend the law.

Kelly Griffith, who fought the industry as co-director of the Center for Economic Integrity in Tucson, said it was a “huge accomplishment” to get payday loans out of Arizona.

Deborah Ward of Mesa agreed.

“I’m glad they will be gone,” said Ward, who used a payday loan last year. “They overcharge in fees. I am so glad I’m not dealing with them again.”

Griffith does not believe the industry will completely leave Arizona because the state has been a profit center for payday lenders.

In the past decade, the payday-loan business grew from a handful of stores to a high of 715 in 2006, before dropping to 522 branches this month, according to state licensing records.

Capping the interest rate deterred payday stores in other states.

When a 36 percent cap went into effect in Oregon in 2007, there were 329 payday licensees. Today, there are 67, according to Oregon’s Department of Consumer and Business Services. In Ohio, the interest rate was capped at 28 percent in 2008, and the number of payday lenders dropped from 1,600 to 970, according to the Ohio Department of Commerce.

New loan strategies

The payday-loan business boomed in Arizona because many consumers had a need for immediate cash and loans up to $500 were easy to get. People with steady jobs and checking accounts could obtain payday loans by promising to repay them, plus pay a fee, after the next payday.

Miller said that with the economy struggling, there still will be a need for short-term loans, making it likely that auto-title loans will become popular.

“The Legislature has been very content with the auto-title program,” Miller said. “It has existed as long as we have had payday loans.”

Miller said consumers can use vehicles they own as collateral for loans, and the notes could run 30 days, a few months or years. The interest rate varies based on the length of the loan, with the highest rate being 204 percent annually or 17 percent a month for loans of $500 or less, according to state law.

Dave Shumway owns PDL Financial Services, a payday-loans business that served up to 200 customers a month. He stopped offering payday loans at the beginning of June and switched to offering auto-title loans.

But he said that may not help him stay in business because many borrowers who come to his store do not own their vehicles.

Jamie Fulmer, vice president of public affairs for South Carolina-based Advance America, which has about 50 payday-loan locations in Arizona, said his company is “evaluating all our options” and has not made a decision about auto-title loans.

Rabenold, the Check ‘n Go spokesman, said consumers also could turn to online payday lenders, especially those based outside the U.S. that do not have to follow Arizona law.

“Consumers will still continue to get access to small-dollar loans from unlicensed, unregulated Internet lenders,” Rabenold said.

Today’s Inside Tucson Business Editorial:

No need to shed a tear, the end for payday lenders is near. For all the national notoriety Arizona lawmakers have taken this year, we need to give credit where it is due. Despite some last-minute efforts by the payday lending industry to allow them to continue loan-sharking in the state, nothing was passed.

The law will expire after Wednesday (June 30). For that we should all be grateful.

It probably had something to do with the 60 percent of the state’s voters who rejected the November 2008 attempt by the industry to do the same thing.

Still though, some lawmakers did try. And we should never forget that it was a Legislature 10 years ago that initially gave the industry the green light.

On Thursday morning, Arizona will join at least 10 other states where payday lending is prohibited.

Judging from what’s happened in other states, including North Carolina and Arkansas, payday lenders tend not to go away quietly. For an industry that makes lots of money preying on the poorest among us with small high-interest loans, these are not the kind of people who are about to leave a crumb on the table.

Payday lending is big business. W. Allan Jones, founder of Check Into Cash, said his national chain of 1,200 stores takes in more than $22 million a year in after-tax profits, according to Gary Rivlin, author of a new book titled “Broke USA” that looks at the business of making money from low-income people.

As Rivlin said on the public radio program “Marketplace” in an interview with Kai Ryssdal, “The problem with the payday loan is the person who’s so desperate today that they’re borrowing money at that kind of rate, two weeks from now, how are they doing to have the extra money to pay back the borrowed amount, plus the fee?”

At its peak in 2008, there were more than 700 payday lending stores in Arizona. It’s estimated that number is now down to around 580. About 200 of them have applied to state officials to move into auto title loans. And up to another 250 or so say they plan to offer other financial services such as high-rate pre-paid debit and credit cards, other short-term loans and check-cashing services.

At most, they’ll be limited to charging a loan interest rate of no more than 36 percent, plus a 5 percent administrative fee.

It remains to be seen how successful any of these alternatives will be considering other retailers already offer them.

Arizona State Attorney General Terry Goddard — who is running for governor — has put out the word that his office will be monitoring the shut-down of the payday lending industry in a program called “Operation Sunset.”

The enforcement unit is comprised of attorneys, investigators and paralegals who will respond to consumer complaints, perform undercover operations, shut down operations that attempt to offer payday loans after Wednesday, and where appropriate, bring claims for injunctive relief and civil penalties against those who violate the law.

It includes a toll-free hotline number: 1-866-879-5219.

Desperate Arizonans could still be vulnerable to those lenders trying to skirt the law. And payday loans remain legal in every U.S. state surrounding Arizona. There are also online payday lending stores, which Goddard says cannot legally loan money in Arizona.

At least one online lender, Pay1Day.com says it won’t fund personal payday loans to Arizona residents because they don’t think they can legally go after an Arizonan for repayment.

That’s something to celebrate.

Copyright 2010 Inside Tucson Business

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The Arizona Republic reports:

Two employees of a Phoenix loan company are accused of posing as Maricopa County Sheriff’s Office detectives since 2009 in an apparent attempt to collect loan payments

Merle Madison, 50, and Paul Romero, 31, who both worked at the Cash Time Title Loan Company on 43rd and Glenrosa avenues, were arrested Tuesday and could face charges.

A Sheriff’s Office employee was receiving calls from people claiming they were
contacted by a Sheriff’s Office detective. The Sheriff’s Office began an investigation in February.

Sheriff’s Office investigators suspected employees at Cash Time Title Loan Company were representing themselves as law enforcement officers in an attempt to intimidate clients to repay loans or turn in
vehicles to be used as collateral for the loans.

The victims said someone claiming to be a “Detective Maxwell” would call about their late loan payment and warn that they could be subject to arrest.

After a months-long investigation, investigators suspect that two employees
used a calling system that caused the Sheriff’s Office telephone number to appear  in the receiver’s caller identification.

According to the Sheriff’s Office, the two employees had apparently made more than 1,700 calls since early 2009 acting as detectives.

The Sheriff’s Office served a search warrant in late May on Cash Time Title Loans when detectives said Madison “admitted” to being “Detective Maxwell,” according to court documents.

One could be charged with impersonating a peace officer, and the second could be charged with conspiracy to aid in impersonating a peace officer.

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Today’s Yuma Sun Editorial:

The voters of Arizona were clear when they said they did not want a continuance of so-called payday loan operations in our state, and now Arizona Attorney General Terry Goddard wants to make sure their wishes are followed.

He is afraid that current payday loan operators in the state will try to continue their high-interest loan practices, as has happened in other states that have restricted their operations. They have done this elsewhere through sham debit cards or auto-title loans.

Auto-title loans are legal in Arizona, and some payday loan businesses are planning to offer them. But Goddard is suspicious, saying his office suspects customers will be told to “shift to auto-title loans, even if they don’t have a car.”

That is a clear subversion of the law, and the attorney general says his staff will closely examine these transactions to ensure there legitimacy and aggressively pursue violators. He also plans to establish a telephone hot line for consumers to report violations and a public education program so consumers are aware of the restrictions on high interest lending.

Some believe the opposition to payday lending was an overreaction and that the practice served a valid purpose in our state of providing short-term loans to people who had no other options to get money they needed.

However, many saw the issue differently and they must end as of June 30.

We would hope that all payday loan operations would respect that decision and not try to subvert it. If not, the attorney general is justified in enforcing the will of the people.

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Today’s Arizona Republic:

Attorney General Terry Goddard pledged Wednesday to go after payday-loan stores that break the law after their permission to charge high-interest rates expires at the end of the month.

Goddard announced an initiative called “Operation Sunset” that will use attorneys within his office to pursue charges against unscrupulous lenders.

“I don’t think they’re going to go quietly into the night,” Goddard said. “The experience of other states indicates there are a number of deceptive practices that former payday lenders may engage in.”

The move comes three weeks before the June 30 expiration of a law allowing lenders to charge interest rates up to 400 percent on short-term loans. Despite intense lobbying from the payday-lending industry, lawmakers did not come to an agreement this year on a law that would extend the lenders’ ability to charge high rates of interest.

Starting in July, interest rates are capped at 36 percent plus 5 percent for administrative fees.

In the absence of such a law, Goddard said, lenders will be more likely to pursue alternatives such as auto-title loans or Internet-based lending. Goddard said North Carolina and Arkansas experienced an increase in deceptive practices after those states changed their laws to outlaw payday loans.

Those activities could be illegal depending on how the agreements are written, he said.

The state has 75 licensed payday-lending companies operating 522 stores, according to the Attorney General’s Office.

Goddard is asking for the public’s help in reporting possible illegal activity among payday lenders. People who believe lenders are operating outside the law are asked to call toll-free at 866-879-5219 or e-mail the office at operationsunset@azag .gov.

The office also set up a Facebook page at www.facebook.com/operationsunset.

Arizona Daily Star/Capitol Media Services:

Saying he fears mischief by payday lenders, Attorney General Terry Goddard is warning them not to make such loans, or anything like them, after state law changes on June 30.

Goddard said once the special exemption for payday lending expires, companies will be able to make loans only under interest limits permitted by state law. That generally is capped at 36 percent a year.

But he said that, based on experience from other states, he fears some lenders may start offering alternatives that are illegal, while trying to pass them off as legitimate.

He conceded, though, the law is not crystal clear – and there are exceptions that will continue to allow loans to be offered to Arizonans with interest rates even higher than the soon-to-be-illegal payday loans.

About the only thing that is sure is that the system of what are called “deferred presentment transactions” is going away.

Under that law, someone presents a check to a lender who knows it’s not currently good but agrees to cash it but not present it to the bank for up to two weeks. The fees on that can hit $17.85 per $100 borrowed, which translates out to an annual percentage rate north of 400 percent.

The special law that permits these self-destructs on June 30. Arizona voters and lawmakers rejected lender efforts to keep them legal.

Industry lobbyist Lee Miller said none of his clients will ignore the law. But Miller said there are other options.

One involves auto title loans, where people can borrow money secured by the title on their vehicles.

Lenders can charge up to 17 percent a month for the first $500, with declining interest rates for higher amounts. Goddard said the annual rate of interest for smaller amounts actually exceeds what is permitted for payday loans.

Goddard said he fears companies lending money masquerading as a title loan.

“We believe a lot of people already are telling their customers to shift to auto title loans, even if they don’t have a car,” he said.

“That’s what I mean by sham auto title loans,” Goddard said. “They’re being rolled into a series of loans which in fact are fraudulent.”

Miller said anyone trying to claim something is a title loan when it is not should be prosecuted. Similarly, he said legal action should be brought against anyone else violating the usury laws on loans.

But Miller pointed out that 36-percent limit does not cover anyone who is purchasing an item on time. In fact, there is absolutely no limit on how much interest a merchant can charge.

Goddard agreed. But he said there actually has to be a product that is purchased.

One of the gray areas is where someone finances the purchase of a prepaid debit card.

Aides to Goddard said these cards, preloaded with cash, often are sold as part of some larger loan package, tacking on fees that bring the total interest on the money borrowed above 36 percent.

But Miller said fees that high don’t necessarily make them illegal.

“You can have a rational debate as to whether a debit card is a product or is a loan,” Miller said.

He said a legal argument could be made that is it a product. And the sale of a product on time carries no interest limits.

Goddard, who is running for governor, is firing a warning shot of sorts over the heads of lenders.

In a letter to all licensed lenders, he warned: “As Arizona’s attorney general, I will not tolerate subterfuge of the law.”

Goddard said he is forming a team of lawyers, investigators, paralegals and other staff with expertise in finance, saying he will sue anyone who violates the law.

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