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Arizona House adopts bill to OK new loans for payday lenders

banking loan, or cash conceptThe Arizona House passed a bill Wednesday that allows payday lenders to offer a new product with more than 200 percent interest, despite voters barring them from operating in the state under a 2008 initiative.

The proposal received approval in a 31-29 vote that included lawmakers from both sides of the aisle rising to champion their causes.

Bill sponsor J.D. Mesnard, R-Chandler, did not explain his vote but let fellow Republicans speak on the bill’s behalf.

Rep. Steve Montenegro, R-Litchfield Park, said “flex loan” companies provide a service for people with bad credit scores who have unexpected expenses. Montenegro said it’s unfair for Democrats to assume that residents will make decisions against their better judgment.

“Even if someone has a lower credit score that doesn’t also mean they have a lower IQ,” Montenegro said.

The old payday loans were issued after a borrower handed over a blank check that the lender agreed to hold for a couple of weeks — until the borrower’s next payday. They had interest rates and fees in excess of 400 percent a year.

The new loans are unsecured, but opponents note that lenders often require direct access to a person’s bank account so they can automatically deduct payments.

House Democrats said the bill would allow “predatory lending” to creep back into the state and prey upon Arizona residents.

Juan Mendez, D-Tempe, said the typically short duration of the loans virtually guarantees the need for repeat loans and creates a nearly inescapable cycle of debt.

“This isn’t a way to get back on your feet. This is economic slavery,” he said.

Rep. Reginald Bolding, D-Laveen, said although it may be important to provide lending options for people with bad credit, the bill allows loan companies to provide a product that will not benefit the consumer.

“We do want to provide options, but we don’t want to intentionally put bad options in the way of our constituents,” he said.

In 2008, voters by nearly a 2-to-1 margin rejected a proposal to extend the law that allowed payday lenders to operate in the state. That forced the industry to shut down in 2010, and they have been unable to get lawmakers to approve a new entry for the lenders.

Current law now caps interest rates at 36 percent annually, plus a fee that tops out at $150 per loan. The new legislation, counting interest and daily fees, nears 200 percent interest, according to a Consumer Federation of American analysis.

The legislation is being pushed by payday lenders through a group called the Arizona Financial Choice Organization. Many of the same players spent $15 million in the failed 2008 effort to get voters to allow them to continue to operate.


  1. “Even if someone has a lower credit score that doesn’t also mean they have a lower IQ.” So true it’s worth repeating. So much of this debate is driven by assuming that unless you have access to prime credit, you can’t be trusted with money.

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