Lenders eye tough choices after Prop. 200 defeat

The defeat of Proposition 200 at the polls has left the payday loan industry with a two-word question: Now what?

Doing nothing is not really an option, as it would put the lenders out of business in less than two years.

Payday lenders ponder next move after defeat

And that timing makes going back to the ballot unrealistic, as any relief would come too late.

Assuming the lenders want to keep operating in Arizona, that would seem to leave only one course: Ask state lawmakers to amend the law, the very thing that voters refused to do. But Lee Miller, chief lobbyist for the Arizona Community Financial Services Association, said that is "to be decided."

At the heart of the battle is a law that industry lobbyists obtained in 2000 which exempts them from the state's usury laws. Those laws cap interest at no more than 36 percent a year.

The 2000 statute creates an exception for fees charged in "deferred presentment transactions" of up to $500.

In essence, someone who needs money writes a check for that amount plus the fee which can be up to $17.85 per $100 valued. The company agrees not to cash the check for up to two weeks. That computes to an annual interest rate of more than 450 percent.

But when lawmakers enacted that 2000 statute they wanted to see how the loans would work. So they included a "sunset" clause: The law self-destructs on July 1, 2010 unless renewed.

Efforts by Miller to persuade lawmakers to remove the sunset failed. That left the ballot.

Here, too, the lenders put in provisions they advertised as "reforming" the industry, including a ban on rollovers and a provision allowing borrowers who cannot make the check good at the end of two weeks to get an interest-free extension. It also would have lowered the maximum fee to $15 per $100.

That proved no more acceptable, as foes noted it still translates out to 391 percent interest annually. In the end, the initiative was rejected by a 3-2 margin despite the industry pouring in more than $14 million.

Miller said some of the reason may have nothing to do with payday loans themselves.

"It turned out to be an inauspicious time to be advocating on behalf of lenders," he said, regarding all the publicity about government bailouts of banks.

Miller said that any decision about what to do in Arizona may depend on what happens in Washington.

"We have a new president, a new Congress, which is likely to take a look at how lenders, in general, do business with consumers," he said.

Congress has already made making payday loans to military personnel illegal by capping interest they can be charged at 36 percent. And Barack Obama, while campaigning earlier this year, promised to impose a nationwide identical cap on interest charged to all borrowers.

The prospects for changing the law in Arizona before the deadline are mixed at best.

On one hand, the key Republican lawmaker who fought to rid the state of payday loans is gone. Rep. Marian McClure, R-Tucson, chose instead to run, unsuccessfully, for the Arizona Corporation Commission.

But Sen. Debbie McCune Davis, D-Phoenix, the other key player in the issue, remains. And she said she is committed to ensuring that payday lending goes away as scheduled.