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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