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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On KTAR:

PHOENIX — Arizona Attorney General Terry Goddard told payday lenders Wednesday they cannot keep operating as usual after a law authorizing their existence expires June 30.

The 2000 law allowed payday lenders to operate for 10 years, exempt from Arizona’s cap on annual interest rates of 36 percent. Interest on some loans was as much as 400 percent, critics said.

The lending industry tried, but failed to convince voters and the Legislature to extend the exemption.

Goddard said that means no more high-interest payday loans.

He expressed concern that the lenders will try to get around the new restrictions.

“We believe that 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.

He said those activities are a sham.

Legitimate loans taken against a car title will be legal, along with check cashing operations.

Goddard, standing outside a payday lending store in central Phoenix, said some of the loans held by such stores “are being rolled into a series of loans which, in fact, are fraudulent. So we’re going to be on top of this. The attorney general’s office is going to be watching these transactions.”

He added, “We are encouraging people who are approached, especially in this rollover time, right now at the end of the time that they are in business, to report to us quickly when they see any evidence of the very, very high interest consumer loans continuing in Arizona.”

There are about 650 payday loan stores in Arizona. Executives have said some will stay open and try to make a profit from other lines of business, including auto title loans, check cashing and prepaid debit cards.

(Copyright 2010 Bonneville International Corporation. All rights reserved. This material may not be published, broadcast, rewritten or redistributed. AP contributed to this report.)

The Associated Press:

Arizona Attorney General Terry Goddard on Wednesday warned payday loan stores not to try to keep operating as usual after a law authorizing their high-interest loans expires at the end of the month.

Speaking in front of a payday loan center in Phoenix, Goddard said he is initiating a plan to aggressively pursue violators.

A task force, a public education campaign and a consumer hot line are all part of Goddard’s efforts to enforce the changes, an effort he calls “Operation Sunset.”

The state law allowing payday lenders to operate for 10 years expires June 30. The lending industry tried but failed to persuade voters and the Legislature to extend the authorization.

Payday lenders write checks for short-term loans while charging fees that amount to interest rates of more than 400 percent on an annual basis.

When other states have tried to restrict the payday loan business, lenders have bypassed regulations by continuing to charge high interest rates and fees on loans marketed as prepaid debit cards and sham auto-title loans, Goddard said.

“Over 200 of the payday lenders in operation today have filed to convert to a license that will allow them to make auto-title loans,” Goddard said. “We believe that a lot of people are ready by telling their customers to shift to auto-title loans, even if they don’t have a car.”

Goddard said his office will try to ensure illegal lending does not occur by looking past labels used by loan companies and examining the actual transactions.

The attorney general’s office will also watch for payday lenders that try to operate on the Internet, Goddard said.

There are about 650 payday loan stores in Arizona. Executives have said some will stay open and try make a profit from other lines of business, including auto-title loans, check cashing and prepaid debit cards.

It won’t be easy to get payday lenders out of the state, Goddard said.

“This is a vigorous and well-funded opponent, and they’re going to try to keep their foothold in Arizona,” he said.

Calls Wednesday to representatives of the payday loan industry in Arizona were not immediately returned.

The toll-free number for Goddard’s payday lending hot line is 866-879-5219.

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Attorney General Terry Goddard today announced the formation of “Operation Sunset”, an enforcement initiative of the Office designed to aggressively pursue payday lenders who attempt to evade the ban on payday loans. The Office will take action against any payday lenders that continue offering loans with illegally high interest rates after the law expires on June 30.

“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. “I encourage citizens to report violations to our Office. Our enforcement will be swift and aggressive.”

Goddard noted that other states, such as North Carolina and Arkansas, have seen deceptive practices following changes in their laws that ended payday loans. Auto loans, pre-paid debit cards and Internet payday lending are alternatives used by the payday loan industry elsewhere to evade the law. For example, pre-paid debit cards have been offered with an interest rate and fees that would exceed Arizona’s annual percentage rate limit of 36 percent.

“We are grateful to Attorney General Goddard for keeping up the good fight to eliminate this industry and support the people of Arizona and their neighborhoods,” said Bishop Henry L. Barnwell, pastor emeritus of First New Life Baptist Church in Phoenix.

“It’s about time the payday loan industry be forced to follow the same rules as all other lenders when making their short-term loans,” said Sunnyslope community leader Christina Plante. “The job of the people isn’t over yet. It will still be our responsibility to work in partnership with the Attorney General’s Office to identify anyone charging triple-digit interest rates.”

The Attorney General’s Office is sending payday loan companies a letter informing them of the “Operation Sunset” initiative and his commitment to vigorously enforce Arizona’s consumer protection laws.

If consumers see violations of the law, they should call the Office’s dedicated Operation Sunset phone line at 1-866-879-5219 or email our offices at operationsunset@azag.gov . They can also visit Facebook at http://www.facebook.com/operationsunset .

Attached is the “Operation Sunset” letter that will be sent to payday lending institutions. For additional information, contact Press Secretary Molly Edwards at 602-542-8019.

OUR VIEW: Payday-loan industry didn’t get reprieve from Legislature; residents win

Let us all be of good cheer: The Legislature has adjourned and, for the time being at least, can do no more harm.

There was very little cheering news from this legislative session, but there’s one very important item on the list to celebrate. That’s the end of usurious payday lenders in Arizona.

Lawmakers resisted several efforts to preserve the industry, so the special law that allowed them to operate will expire automatically on June 30. We wanted to wait until legislators officially adjourned and dispersed before celebrating.

A decade ago the Legislature voted to give the industry an exemption from the state’s 36 percent interest-rate cap – known as the “usury” cap – on a trial basis.

Thus the payday lenders were able to charge fees that tally to more than 400 percent on an annual basis – trapping many borrowers in an endless cycle of growing debt. There are 650 payday-lending shops around the state.

In 2008, Arizona voters rejected the industry’s effort to extend the exemption, despite a $14 million campaign by the payday lenders. The vote was 3-2 against the extension.

How did the Legislature come down on the right side of this issue this time? Capitol Media Services’ Howard Fischer reported in the Star that lawmakers were unwilling to buck the voters.

For instance, state Sen. Ron Gould, R-Lake Havasu City, told Fischer he believes business should operate with minimal government regulation, but he said the vote on the payday lending issue trumped that belief.

Sen. Debbie McCune Davis, D-Phoenix, a fierce opponent of the industry, has argued that once the 36 percent cap is restored for all lenders, credit unions and banks will step up to fill the need for quick, short-term loans, as they did before payday lenders got their exemption.

McCune Davis argued that the industry can operate successfully under the 36 percent “usury” cap. In fact, its lobbyist, Lee Miller, told Fischer last month that some payday-lending stores will be able to stay in business, making money on check cashing, and operating as agents for the Motor Vehicle Division.

A lot of bad laws were passed by this GOP-dominated Legislature. The list includes requiring local officers to enforce federal immigration law, ending training and certification for carrying a concealed weapon, allowing motorcyclists in Maricopa County to ride between lanes, restricting public funds to pay for abortion and adding new abortion reporting requirements – it’s a long list and not remotely cheering, so we’ll stop.

But let’s take a moment to be glad that payday lending and the dreadful human toll it takes will end in Arizona in eight short weeks. Not a day too soon. At least they got this one right.

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