The Senate Committee on Financial Institutions and Insurance has approved a measure that would extend the authority of payday-loan companies to operate in the state until 2012.
Its main proponent, Sen. Robert Blendu, R-Litchfield Park, said lawmakers need more study on the industry - and the niche it fills - before deciding its future.
Ultimately, it may not matter what lawmakers do: One legislator is leading an entirely separate fight to put a measure on the November ballot to make payday lending illegal. That would give the final say to voters.
This new measure is being pushed by the Community Financial Services Association, made up of most of the companies that provide these loans in Arizona.
When lawmakers first agreed to allow these high-interest loans at the beginning of the decade, they wanted to see how they work. So, in essence, legislators agreed to a trial: The law authorizing the loans self-destructs in 2010 unless extended.
Unable to get that deadline repealed outright in prior years, the industry now is trying a new tactic: A short extension, with a study of how it operates. Lobbyist Stan Barnes believes the study will show that payday-loan stores are needed.
"Before the Legislature puts 2,500 people out of work and takes away financial choice from thousands of Arizonans, it ought to know why it's doing what it's doing," he said.
That study - in the current measure, Senate Bill 1239 - would require payday lenders to annually report the number of loans made, the average annual percentage rate and whether people borrow more than once.
The loans actually are a promise by lenders not to cash a check for up to $500 for up to two weeks. Borrowers write out that check for an extra 15 percent.
"If they're not there, who's going to take their place?" he said.
"Is it going to be some crook, some drug dealer, somebody who holds their kids hostage?
"I don't know," Blendu continued. "But I'm sure that activity is not going to stop."
But Kelly Griffith, lobbyist for the Southwest Center for Economic Integrity, said there are - or at least will be - alternatives.
She said the National Credit Union Association conducted training in December for its Arizona members to get them to make more small loans available.
Griffith said the interest rate on those would be no higher than 36 percent on an annualized basis, the maximum permitted under other state laws for any type of loan other than payday loans.
"It's not about being anti-business or anti-credit," she said.
"It's anti-usury," Griffith continued, particularly when borrowers "roll over" their loans for another two weeks or just pay those off with money borrowed from another payday lender.
That's also the contention of Rep. Marian McClure. The Tucson Republican is spearheading the initiative drive to have voters ban payday lending.
It is possible lawmakers will keep the companies in business but with a much tighter financial leash.
Even Blendu questioned the amount state law now allows lenders to charge: That 15 percent fee for a two-week loan, on an annual basis, can translate to close to 400 percent interest.
In fact, for Blendu, even a 36 percent interest cap "is too much."
But the industry is unwilling to accept that kind of cap.
Lee Miller said that a 36 percent rate on a two-week loan for $300 would result in net profits of less than $1.50. Instead, Miller wants a cap close to what most lenders now are charging: $15 for every $100 borrowed.
McClure ridiculed the idea that the industry and its practices can be properly regulated.
"I know that they're an equal-opportunity predator," she said.
Sen. John Huppenthal, R-Chandler, said the debate often gets sidetracked over the question of how people who go to payday lenders use the money. He said some argue that the storefront-loan shops should be shut down because some people might use the proceeds to buy drugs or alcohol.
But Huppenthal said that doesn't paint the whole picture. He said he could foresee a number of reasons someone might choose to go to a payday lender.
For example, Huppenthal said, someone behind in utility payments might have to pay a $100 fee to have the power turned back on if it is shut off. He said a payday loan, even at 15 percent for two weeks, is affordable.
Similarly, he said, someone whose vehicle can't be repaired due to lack of money might lose a job.
And, Barnes said, it is "more expensive to walk into a Wal-Mart and bounce your Wells Fargo (Bank) check than it is to go to a payday lender where they treat you with dignity."
Even Blendu suggested that, as long as there is proper disclosure of terms, it might be inappropriate for legislators to decide to make this option illegal.
"It's amazing what we allow two consenting adults to do in some areas and what we're just 'wigged out' about in other areas," he said. Blendu said the study would enable lawmakers to decide if they want payday lenders in the state and, if so, under what regulations.
"If we want them here, and we're satisfied there's a market for them, we ought to regulate them," he said.
Howard Fischer
Capitol Media Services
Source: The Arizona Republic Date: February 28. 2008
