Payday loan bill deserves hearing

A bill that would have created a registry in which every payday loan made in Arizona would have to be recorded with the state died in committee Monday. This was the correct result, even though there is room for some limited and reasonable regulation of the payday-loan industry.

House Bill 2224 called for a statewide registry of all such transactions as a means to prevent consumers from getting several loans at once they couldn’t afford to repay. But if the widespread failure to use local registries of sales of overthe-counter drugs that could be made into methamphetamine — the subject of recent revelations by the Tribune — serves as any guide, it is doubtful the state would oversee a similar payday-loan registry with any degree of reliability.

Under current law, a payday-loan borrower may extend his or her loan to a new lending period up to three times. Monday’s defeated legislation called for a maximum of only once. Perhaps that was too strict a measure for members of the House Committee on Financial Institutions, who rejected HB2224 on a 5-4 vote.

It is true that some people take out too many very short-term loans and can suffer significant financial woe. The North Carolinabased Center for Responsible Lending said in a November report on its Web site (www. responsiblelending.org) that 90 percent of payday-loan borrowers take out at least five such loans in a year’s time, and 62 percent take out 12 or more annually. But government acting as nanny, telling people how many loans they can take out rather than have that be a function of the private sector, can actually harm the interests of borrowers.

As has been pointed out in this space previously, many low-income people lack the credit to obtain any other kind of loan to pay for rent or groceries or, even more important, have no other means to establish good credit in order to borrow money at lower interest rates in the future. A majority of the Mesa City Council realized this in October when it turned down city regulation of payday loan stores. The Tribune reported Councilman Scott Somers as saying that last fall’s proposed crackdown wouldn’t stop people from going into debt. “We’re not banning credit cards,” he said.

Another, potentially more reasonable measure has been proposed in the Legislature, but has been unable to get a hearing, the Tribune’s Dennis Welch reported Sunday. Instead of a registry, state Sen. Chuck Gray, R-Mesa, has proposed a cap on interest rates for such loans at 36 percent, a figure used by about a dozen other states, the Center for Responsible Lending said. The payday loan industry says this change, combined with an existing state limit on payday loans to $500, would drive them out of business.

Gray’s proposal deserves formal debate so lawmakers can examine experiences in other states versus the possible negative effect on an enterprise for which there is obvious demand.