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Payday lenders face extinction following Senate vote

A Senate committee dealt the payday loan industry what might be a fatal blow, rejecting a bill to save the short-term lenders and finishing the job voters started in 2008.

The Senate Appropriations Committee on March 16 voted down a strike-everything amendment on H2370, the second time this legislative session that an industry-saving bill failed to reach the floor. The bill would’ve repealed the June 30 sunset date facing the payday lenders, allowing them to continue operating in Arizona.

After a rejected ballot initiative and two failed bills, payday lenders have little recourse to save their industry. Lobbyist Stan Barnes, who is representing the payday loan industry, said there probably won’t be another bid to save payday lenders before they close their doors for good this summer.

“This was the best we could do. We had employees here who were going to lose their jobs. We had a compelling story. The facts are on our side. And if the Senate is not going to accept that, I don’t know what else there is to do,” Barnes said. “There are technical ways to keep the issue alive, but for what purpose? … We’d get the same outcome if we tried something else.”

Only Republican Sens. Jack Harper, Al Melvin and Russell Pearce, who introduced the strike-everything amendment, voted in favor of the bill. The bill had bipartisan opposition, with Democratic Sens. Paula Aboud and Rebecca Rios voting against the bill, and Republican Sens. Sylvia Allen, David Braswell and Ron Gould voting against it.

Gould, a relentless advocate of the free market, acknowledged that voting to permanently shutter an entire industry might seem to contradict his political beliefs. But voters have made it clear that they wanted the industry to sunset, Gould said, and he honored their will.

“Sometimes the Christian overweighs the Libertarian in me,” the Lake Havasu Republican said.

H2370 was the payday loan industry’s third bid in two years to stay in business. Proposition 200, an industry-written ballot initiative, failed in 2008 when 60 percent of voters rejected it, and Rep. Andy Tobin in January withdrew an industry-saving bill from the House Banking and Insurance Committee due to a lack of support.

Pearce’s amendment was similar to Tobin’s. Both would have lowered the interest rate on payday loans from $17.50 to $15 per $100 borrowed, eliminated the rollover of outstanding loans that can raise annual interest to about 400 percent, and created a database of customers so lenders can ensure that borrowers do not have more than $500 in outstanding loans.

Hundreds of employees and supporters of the payday loan industry rallied on the Capitol mall several hours before the vote, chanting “save our jobs” and urging the Appropriations Committee to save the jobs of the 2,500 people employed by payday lenders in Arizona.

Others emphasized the niche payday lenders fill for people who fall on tough financial times but can’t get loans from banks or credit unions. Gerri Guzman, executive director of the Washington, D.C.-based Consumer Rights Coalition, testified in front of the committee as both an advocate and former customer of payday lenders. She said she used payday loans to help keep her from losing her home during her divorce.

“In my case, it wasn’t an option that I had planned for. But it was an option that saved me from losing my home,” Guzman said.

Ted Saunders, CEO of CheckSmart Financial Co., which owns 252 payday loan businesses in 11 states, including Arizona, said voters’ rejection of Prop 200 was not a blanket rejection of the industry in general. Voters were simply wary of any industry that sought to write its own regulations, he said.

“The industry was naïve in believing it could … run a proposition that they wrote,” he told the Senate committee. “The notion of self-policing was not perceived well by the voters.”

The payday loan industry retained a bevy of high-powered lobbyists and consultants to help craft the legislation and press for its passage. Most recently, an industry group hired Democratic lobbying firm Ziemba Waid. Genevra Richardson, a lobbyist with Ziemba Waid, said the industry hired her firm to help court Democratic lawmakers.

“When you’re dealing with such a sensitive and controversial issue, Democrats want to work with people they can trust,” Richardson said.

Supporters and opponents of the payday loan industry gathered earlier in the day to speak out on H2370. Attorney General Terry Goddard, Sens. Chuck Gray and Debbie McCune-Davis, along with Jean Ann Fox, of the anti-payday loan group Consumer Federation of America, held a morning press conference to urge the bill’s defeat.

Goddard, the likely Democratic nominee for governor, called the 2000 law that allowed payday lenders to operate in Arizona as a “10-year experiment” whose time had come.

“It’s time to say enough is enough. We, in fact, have come to the end of an experiment which has been very, very difficult – some say abusive of Arizona consumers,” Goddard said.

The bill’s defeat may help Gov. Jan Brewer avoid a potential political dilemma. The payday loan industry hired the consulting firm HighGround, which is running Brewer’s gubernatorial campaign, to consult with third parties on the bill, and campaign opponents have used that as ammunition against her.

HighGround president Chuck Coughlin, a longtime advisor to the governor, called the criticism unfair and said his firm never lobbied Brewer or anyone else on behalf of the payday loan industry. Brewer in January said she did not remember how she voted on Prop. 200, though a spokesman later said she voted against it.

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