The House gave preliminary approval April 23 to a measure that would place tight restrictions on payday lenders in exchange for allowing the industry to permanently operate in Arizona, despite a pair of attempts to keep the industry’s temporary status codified in law.
“We’re making some great strides forward for the consumers of Arizona,” Rep. Chad Campbell, D-14, said during floor debate April 23.
Payday, or deferred presentment, loans allow consumers to borrow up to $500 for two weeks. In lieu of charging interest on the loan, lenders charge a 15-percent fee, and require borrowers to provide a check for the whole amount that will not be cashed unless the consumer fails to repay the loan and fees.
The bill, S1446, would eliminate so-called “rollovers” of loans, in which a borrower extends the loan for another two weeks, but pays an additional 15-percent fee. State law currently allows three such “rollovers.” Instead, the bill allows borrowers to enter into a 90-day fee-free repayment plan.
The net effect of allowing borrowers to pay a single fee for a 105-day loan instead of paying four fees for a 56-day loan is a reduction in the annualized interest the fee represents from almost 400 percent to about 50 percent.
Lee Miller, a lobbyist for the Arizona Community Financial Services Association, a payday lending industry trade group, says the bill will clearly define how the industry must interact with borrowers.
“The bill, to us, represents certainty about how we deal with our customers,” he said.
Some unhappy that sunset provision was not put in place
Despite the consumer protection components of the bill, some lawmakers were unhappy the legislation also strikes the 2010 automatic repeal of the payday lending statutes from the books. Rep. Mark Anderson, R-18, offered an amendment to keep the repeal date in place.
“This just allows us one more year to see how the reforms are implemented before we lift [the repeal],” he said.
His amendment failed, as did a similar attempt by Rep. Steve Farley, D-28, who hoped to extend the repeal, or sunset, date to 2012.
Miller disputed the notion that payday lenders would just go out of business on the sunset date. Instead, there would simply be no regulation on payday lenders, like when the laws governing them were created in 1999.
“They would not go away, you would not lock the door on payday loans,” he said. “If the sunset arrived, we’d be back where we were in 1999…without clear limits on how to operate.”
Despite the sunset date not being a death knell for payday lenders, Miller said the industry pushed for its removal for the sake of certainty. Though he is confident the industry would not become illegal, he said there would be a protracted court battle over the industry’s status. The trade off — reforming in exchange for removing the sunset — was worth it, he said.
“In the world of business, there’s almost nothing better than certainty,” he said. “You would almost always trade the potential to make a little bit more profit with some amount of risk for modest profit with no risk.”
House Minority Leader Phil Lopes, D-27, said he was one of several Democrats who could not support the bill if it did not have a sunset provision in place, no matter how much they liked the other reforms.
“Having a sunset date is what brings the industry to the table,” he said. “I’m fearful that, if the sunset date is not there, we may not get the reforms that are necessary [in the future].”
But Campbell said the Legislature could still place restrictions on payday lenders in the future without a sunset.
“We can do whatever we want with the payday lending industry if we have the political will to do it,” he said. “A sunset date is irrelevant.”
The bill was approved in Committee of the Whole and is awaiting a vote by the full House.