Because legislative channels haven’t provided acceptable limits on the payday loan industry and the industry couldn’t be trusted to follow the law anyway, a Tucson lawmaker is hoping voters will choose to outlaw and criminalize short-term loans.
“At one point in time, I really did believe you could reform the industry,” Rep. Marian McClure, R-30, said. “However, with the way that they perennially get around our laws and regulations in the state of Arizona, I now believe that the only thing you can do is to eliminate the payday lenders.”
The initiative, which was filed with the Secretary of State’s Office on May 14, repeals the laws that regulate payday lenders. It also defines payday loans – known in statute as “deferred presentment services” – and would make them felonies after Oct. 31, 2009.
Anyone convicted of making such loans would face one-and-a-half years in jail.
Lee Miller, a lobbyist for the Arizona Community Financial Services Association, a payday lending industry trade group, says McClure is trying to limit the options Arizonans have financially.
“Rep. McClure believes she knows best what’s the right financial choice our customers ought to be making,” he said. “She’s articulated that stance wildly, boldly and emphatically. We disagree with her.”
He said the initiative would actually do more harm than good.
“We don’t think it’s ever helpful to the people of Arizona to eliminate choices,” Miller said.
But critics like Kelly Griffith, deputy director of the Southwest Center for Economic Integrity, say the industry preys on people and exploits them for profit. She said that, for people who are treading water financially, payday loans are an anchor, not a life preserver.
400 percent interest
“It’s predatory, it’s usury,” she said. “It’s basically a guaranteed access to debt.”
Under the current system, a person taking out a short-term loan for $500 writes the payday loan company a post-dated check for $575 — the amount of the loan plus a 15-percent fee. If a borrower can’t repay the loan and the fees within two weeks, they can extend the term another two weeks for another 15-percent fee. Statute allows for three such “rollovers” per loan.
Critics like Griffith say the combination of the fees and the rollovers create an annualized interest rate that can approach 400 percent.
Miller, though, says using payday loans is cheaper for consumers than the alternative: large fees for bouncing a check or drawing their bank account into the negative.
“We fail to understand why it’s a good idea to eliminate a low-cost option without tackling the real problem, which is why people need a payday loan,” he said.
Instead, Miller says lawmakers should focus their efforts on encouraging banks and credit unions to provide adequate financial services to all customers, not just those with large savings accounts.
“The better approach is to figure out a better financial model that allows the average Arizonan to get the financial services they need at a fair price,” he said.
However, McClure says there is no redeeming value for payday loans, as they only drag borrowers further into debt. While some of her critics have said it’s not the government’s duty to protect people from themselves, she says there is an obligation to keep citizens out of financial harm.
“If it ruins lives, I believe that we do have a responsibility to give the people a fighting chance…,” she said. “If the Legislature had not created this monster, I doubt I would be standing here saying we have to do this today.
“As a society, we believe certain things are wrong. Everybody knows payday lenders — their product destroys lives,” she said.
McClure said the initiative will not use paid circulators to gather the 153,365 signatures needed by July 2008 to get the measure on the ballot that fall. Instead, she will rely on a network of volunteers.
“This will be a true citizens’ initiative, one that the people truly care about,” she said.
Among the groups McClure hopes to recruit volunteers from are various Republican and Democratic women’s organizations, labor unions and social advocacy groups.