D.C. payday lender bill jeopardizes AZ law - East Valley Tribune: Arizona

D.C. payday lender bill jeopardizes AZ law

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Posted: Saturday, April 4, 2009 9:24 pm | Updated: 2:43 am, Sat Oct 8, 2011.

Arizona voters made it clear last year they don't want payday lenders in the state. But the defeat of Proposition 200 by a wide margin could become moot depending on what happens in Washington where lawmakers are weighing the first-ever federal regulations of the industry.

Payday lenders thwart limits

Arizona voters made it clear last year they don't want payday lenders in the state. But the defeat of Proposition 200 by a wide margin could become moot depending on what happens in Washington where lawmakers are weighing the first-ever federal regulations of the industry.

Payday lenders thwart limits

And one of those plans would overrule any Arizona laws.

The move would be a major setback for foes who managed to beat back a $14.6 million campaign and thought they had finally put the issue to rest.

Payday loans only became legal in Arizona in 2000 when lawmakers, lobbied by the industry, agreed to craft an exemption from state usury laws. These limit annual interest rates on most loans to no more than 36 percent.

This special exemption technically did not alter the interest cap. In fact, it doesn't even consider the transactions loans but instead "deferred presentment transactions.''

In essence, a borrower writes out a check for up to $500 that is not good. The lender agrees not to cash it for up to two weeks.

For that, the lender can charge up to $17.85 per $100 borrowed for up to two weeks, a figure that, computed out, calculates to annual percentage interest of more than 400 percent.

That 2000 law, however, did include a provision that made it an experiment: It self-destructs on June 30, 2010.

Unable to get lawmakers to repeal the sunset at least not on terms the lenders found acceptable, they took their case directly to the public last year.

The initiative did have some reforms. For example, anyone who could not make good on the check after two weeks would be entitled to an extension, interest-free if regular payments were made. And the maximum fee would be lowered to $15 per $100 borrowed, a figure that still tops 390 percent.

But those changes, and that $14.6 million campaign, failed to do the trick: Proposition 200 went down by a 3-2 margin. And so far this session, no state lawmaker has been willing to introduce legislation to repeal the self-destruct date in the face of that public vote.

All of that means payday lenders will have to close up by July 1, 2010, maybe.

That wild card is because industry lobbyists have turned their attention to Washington where various measures billed as regulating the industry on a federal level have been introduced.

And with that comes the risk that federal legislation would trump any state laws and make the voter defeat of Proposition 200 and the sunset date in Arizona law meaningless.

Arizona Attorney General Terry Goddard, who sided with foes of Proposition 200, said his reaction to the move is "virtually unprintable.'' But he said it wouldn't be the first time that an industry, unhappy with state regulations, has looked to a potentially more friendly Congress for relief.

"We've had huge setbacks in the past several years because of Washington's power grab in terms of a variety of consumer protection actions which were being handled by the states and the industry's feelings they were being attacked,'' he said.

Goddard said other bills with pre-emption have "basically frozen consumers out.''

He said, for example, national banks got Congress to block states from regulating their lending practices. The result, Goddard said, was "predatory loans were allowed to flourish.''

While Arizona lawmakers have not stepped forward to keep the payday loan industry alive, there has been a move to replace it sort of, with another type of high-interest loan.

HB 2608 would cover loans from $200 to $3,000. Funds could be borrowed for no less than five months and, depending on the circumstances, for up to 24 months.

The cost of borrowing, like the payday loans, would be measured not in interest but in fees: They would carry a 10 percent origination fee, with a minimum of $15 and a maximum of $75. On top of that, lenders could charge up to 4 percent per month.

Rep. Andy Biggs, R-Gilbert, sponsor of the measure, acknowledged that could translate into an annual percentage rate of just short of 100 percent on a $750 loan. But Biggs said that is justified because these loans, which are unsecured, have a high rate of default.

The measure stalled on a 4-4 vote last month in the House Banking and Insurance Committee, though the possibility of resurrection later this session remains.

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