Despite her best efforts in the Legislature, and in spite of a deal she has struck with the payday lending industry on current legislation, a Tucson lawmaker says the businesses notorious for preying on the poor and financially uneducated can’t be trusted to follow regulations set by the state. In turn, Rep. Marian McClure will try to get voters to effectively kill the industry.
The ballot proposal would cap interest rates on payday loans at no more than 30 percent plus the prime interest rate, which is the lowest interest rate banks charge preferred customers on loans. McClure said she chose the floating cap tied to the prime rate because it is impossible to predict inflation and the economy, noting the prime rate hit 21.5 percent in 1980.
Since being approved by the Legislature in 2000, payday lenders have been criticized by lawmakers and consumer advocacy groups alike for what some call predatory practices, including charging fees on two-week loans that convert into rates of nearly 400 percent when annualized.
But Lee Miller, a lobbyist for the Arizona Community Financial Services Association, a payday lending industry trade group, said payday lenders aren’t the bad guy.
“Everybody needs an enemy, and instead of going after the problem, they want to take a swing at payday [lending],” he said.
Miller says payday loans give consumers a way to navigate the financial pitfalls created by what he says is the real problem: onerous fees from other companies and financial institutions.
“If you really wanted to do something about payday loans,” he said, “you’d go after the source of the problem people have, which is outrageous bank fees and utility disconnect fees…because, if you avoided those, there’d be no need for payday lending.”
Even though she has reached a deal with payday lenders to add more regulations in exchange for removing an automatic 2010 repeal of the statutes that allow the industry to exist in Arizona, McClure says she doesn’t feel the changes to the law made in S1446 will have much effect, as payday lenders will exploit any loopholes.
But Miller says the interest rate limit set in the initiative would have the practical effect of forcing payday lenders out of Arizona, despite the fact the 720 or so stores statewide show there is a need for such lending.
McClure is not persuaded by that argument, though.
“What did they do before payday loans?” she asked. “They went to family members, they went to friends. Many times, they went to employers and got the employer to give them an advance.”
A cash-flow crunch, she said, can also be solved by prioritizing spending better instead of taking out a high-interest-rate loan.
For example, she said someone who needs a tire doesn’t have to buy an expensive new one. Instead, the person could buy a used one from a junk yard, even if for only a couple of weeks, taking care of the immediate need.
McClure wanted ban on internet loans
S1446 was approved by the House Financial Institutions and Insurance Committee March 27 and is awaiting floor action. But the committee was unwilling to include ban on Internet payday loans McClure sought, opting instead to allow lenders licensed by the state to have a presence on the Internet.
That, McClure says, was the tipping point for her. She called such loans “as dangerous, if not more so, than Internet gaming,” and said their ease of use and the near impossibility to regulate is a recipe for abuse.
“If it were not for Internet loans, I would not be going this route,” she said. “This is my whole reason for doing an initiative.”
Miller, though, championed the bill, saying it is a compromise among the industry, McClure and consumer advocates.
“One of the hallmarks of a good piece of legislation is that none of the stakeholders think they got the upper hand in the finished product,” he said. “In [Senate bill] 1446, the industry doesn’t think it’s deriving any benefit for itself. Neither does Mrs. McClure or the consumer groups.
“That probably means this is the right bill.”
Lawmaker expects backing from both parties for signature gathering
McClure said she expects activists in both parties to get behind her initiative and gather signatures. As the former president of the Arizona Federation of Republican Women, she says she has a commitment from the 3,000-member group to help her. She also has reached out to the group’s Democrat equivalent and said she anticipates their help, too.
She also said she had been in contact with Arizona Community Organization for Reform Now, which helped put the $6.75-an-hour minimum wage proposition on the ballot last year, about gathering signatures for this initiative.
In order to get on the 2008 ballot, McClure must gather 153,365 petition signatures by July 3, 2008.
One consumer advocacy group McClure has worked with in the past, though, is tempering its excitement at the initiative the lawmaker is proposing. Kelly Griffith, deputy director of the Southwest Center for Economic Integrity, said her organization would like input into the initiative’s final language to ensure it is both clear and effective.
“We’re really at that point where we need to give it some serious thought,” she said.
Griffith pointed to Oregon, where a proposed ballot initiative spurred lawmakers into heavily regulating payday lending, as a prime example of what she hopes will happen here.
“We know from the state of Oregon that it can be done,” she said.
While McClure has no real cash for the campaign, Miller said the companies that operate the payday loan stores will open their wallets to defeat her measure, should it end up on the ballot.
Griffith acknowledged the difficulty McClure and others will have in going toe-to-toe with the payday loan industry.
“The payday loan industry…has very deep pockets,” she said. “It will be an uphill battle.”