Tuesday, May 22, 2007

Lawmakers deadlocked yesterday on whether to extend the state’s authorization for instant payday loans, creating uncertainty about the fate of a bill that would give new protections to borrowers.

Members of a House-Senate conference committee disagreed over proposals to extend, maintain or erase the current “sunset” expiration date of July 1, 2010, that’s in the state law enacted in 2000 to permit lenders to make payday loans.

Now offered through hundreds of businesses across the state, payday cash loans are for amounts between $50 and $500, excluding fees. They work by having a borrower sign a postdated check for an amount that includes both the money borrowed plus fees. At the end of the loan’s two-week period, the lender redeems the check for the face amount.

The industry and its supporters argue that payday loans fill a marketplace need for small loans for individuals facing a cash crunch. Critics say the industry’s practices results in exorbitant costs for borrowers who cannot afford to immediately repay the loans and end up renewing the loan.

Key provisions of the bill (SB1446), other than the sunset, include limiting a borrower to one savings account payday loan at a time, requiring lenders to check a database to verify that an applicant does not have an existing loan, requiring lenders that use the Internet to sign up borrowers to get a state license, and giving borrowers the right to repay a loan over a longer period than the original period.

As approved by the House on May 1, the bill would have erased entirely the 2010 sunset as part of a compromise in which the industry agreed to new restrictions on its lending practices and accepted new requirements to report to state regulators.

House conferees on Monday held out for that position, but the Senate conferees voted 2-1 to keep the current 2010 sunset so lawmakers can get reports from regulators and review the payday advance loan industry’s performance.

“We have very little information on how this industry is conducting its business,” said Sen. Debbie McCune Davis, D-Phoenix.

Including either proposed sunset would kill the cash advance bill, the end product of at least two years of work that saw the industry make a lot of concessions, said Rep. Bill Konopnicki, R-Safford.

Citing the compromise that led to the May 1 House vote, Rep. Marian McClure said she felt obliged to oppose the senators’ attempt to keep a sunset on the books.

Either proposed sunset “might sink what I feel is a fairly comprehensive reform package … that I’d like to see get through as a first step,” said McClure, R-Tucson.

McClure, a critic of personal loans, recently filed papers to conduct an initiative campaign to ask voters in 2008 to ban payday loans.

Lee Miller, a lobbyist for the Arizona Community Financial Services Association, said before Monday’s conference committee that the industry wanted no sunset but accepted 2018.

With new reporting requirements in the bill, “we think we win the debate” when lawmakers have access to statewide data as opposed to “horror stories” based on anecdotal accounts provided by bad credit cash loan critics, Miller said.

However, McCune Davis and Republican Sen. Tom O’Halleran of Sedona rejected the 2018 date when it was proposed by Sen. Chuck Gray, R-Mesa.

This entry was posted on Tuesday, May 22nd, 2007 at 6:10 pm and is filed under Arizona.