The most recent attempt to save the payday loan industry ended quietly on April 6, when the Senate Finance Committee canceled a vote on a strike-everything amendment to H2035. Two other bills that would have allowed payday lenders to keep operating were rejected earlier this year.
Barring a last-ditch legislative effort to save the industry, all 603 of the payday loan stores in Arizona will have to close by July 1.
“It means the sunset date is going to arrive and the payday statutes are going to evaporate,” said Lee Miller, a lobbyist for the industry.
All three of the bills that failed this year would have allowed the industry to continue operating without a sunset date, although they contained additional regulations aimed at protecting consumers who fall into a trap of high-interest loans. A ballot measure that failed in 2008 contained similar provisions.
The strike-everything amendment that was pulled from the hearing calendar would have changed existing consumer loan statutes to allow lenders to charge higher fees on loans that are capped at 36 percent interest.
The goal was to allow payday lenders the flexibility to operate under a different statute, despite the end of the law that specifically allowed the industry to operate in the state. But even the author of
the strike-everything amendment, Sen. Jack Harper, acknowledged it was a futile effort.
“The proponents never had the votes for this,” Harper, the chairman of the Senate Finance Committee, wrote in an e-mail that was forwarded to the Arizona Capitol Times.
Theoretically, lawmakers could use another strike-everything amendment to revive an extension for the payday loan industry or offer a floor amendment to another bill on a related topic.
From a political standpoint, though, the Legislature is unlikely to try again to save payday lenders. The industry is unpopular with voters, and lawmakers would risk making themselves a target in the upcoming election by continuing to push for an industry extension.
David Higuera of Arizonans for Responsible Lending, the group that spearheaded the campaign to defeat the payday industry-backed proposal in 2008, said, “I would think you would not want to piss off your constituents. And clearly Republicans and Democrats, in terms of the voters, are united in opposing continuation of payday lending at 400 percent (interest rate). So the public very clearly wants the 36 percent cap in effect.”
Sen. Debbie McCune Davis, a Democrat from Phoenix and a critic of the industry, said the industry has indicated “it’s the end.”
The decision to yank the bill from the committee agenda followed intensive lobbying from both sides.
Supporters of payday lenders said shutting down the industry would result in thousands of lost jobs and much-needed tax revenue.
Opponents argued that the 400 percent interest charged on some payday loans were predatory and bad for the economy because consumers can get caught in a cycle of debt.
But the odds were stacked against the industry, which became clear when longtime opponents of government regulation decided consumers need protection from payday loans.
Sen. Ron Gould, a Republican from Lake Havasu City who is a member of the Finance Committee, said he was planning to vote against the striker that was supposed to be tackled in committee April 7. He had said his moral objections to the industry outweigh the benefits of free enterprise.
All three Democrats on the eight-member panel, including McCune Davis, also had made it clear they would vote “no,” which essentially doomed the effort.
Even if the strike-everything amendment would have advanced through the committee, the bill likely would have been rejected on the Senate floor or in the House.
Barry Aarons, a lobbyist who opposed the extension of the payday loan industry, said the strike-everything amendment was a backdoor attempt by a desperate industry.
“No one should be fooled by that,” Aarons said. “Notice also that there are no reforms, no controls, no prohibitions about multiple loans, no tracking system, nothing like that.”
Miller said the demand for short-term loans will not go away with the sunset of the payday industry. He said entrepreneurs would step up to fill that demand.
“Capitalism works and entrepreneurs who perceive a demand will work to fill that demand. What is going to be different is that the product is going to be a lot more complicated,” he said.
Details of the striker
The strike-everything amendment to H2035 would have altered existing state law to allow all consumer lenders to collect a higher rate on fees, while limiting payday lenders to a maximum of 36 percent interest on loans, the same as other consumer lenders.
The amendment would have allowed lenders to collect a 7.5 percent origination fee on a loan of $1,000 or less. Existing law caps origination fees at 5 percent.
The amendment also would have removed a $75 cap on the amount a lender can collect as an origination fee, and it would have allowed lenders to charge a $10 fee for preparing documents and obtaining credit reports.
If the amendment had been attached and the bill had passed, for example, a $400 loan would have cost a consumer as much as $52 in fees, including $12 in interest, if the loan were paid back within a