Tuesday, May 15, 2007

A veteran state legislator and some colleagues took the first steps Monday to make it a crime to issue a payday cash loan in Arizona.

An initiative drive crafted by Rep. Marian McClure, R-Tucson, would repeal existing laws that permit “deferred presentment” transactions, where a lender agrees to hold a bad check for up to two weeks for a fee of up to 15 percent of the amount. On an annual percentage basis that can be close to 400 percent.

The measure also would make anyone who issued such no fax needed payday loans punishable by up to 18 months in state prison.

Whether that will dry up high-interest, short-term loans in Arizona is unclear. Even McClure conceded lenders might find a way around the prohibition.

But she said if tighter restrictions are necessary she will amend the initiative language to impose an absolute cap on allowable interest, doing that before the first check cash advance petition hits the streets. McClure needs 153,365 signatures by next July (eds: 2008) to put the measure on the 2008 ballot.

She acknowledged she has not yet raised any money and has little hope of bringing in enough to hire paid circulators. Few - if any - measures have qualified for the ballot in the last three decades without hiring people to help gather signatures.

But McClure said she has volunteers who are retired and can spend several hours a day in front of grocery and drug stores with petitions. And she predicted the payday advance idea will have enough support from editorial writers and talk show hosts to compensate for the lack of cash.

The two week loans essentially involve a lender agreeing not to cash a check for up to $500 that the borrower acknowledges is not good. The promise is made to cover that check — plus the 15 percent fee - within two weeks.

Industry lobbyist Lee Miller said the online cash loans fill a need. “We don’t ever think it’s good for the consumers of Arizona to eliminate choices,” he said.

But McClure said government should protect its citizens from dangerous activities, comparing it to laws against using dangerous drugs.

“If it ruins lives, I believe we have a responsibility to give the people a fighting chance,” she said. And McClure said the Legislature “created this monster” with its 2000 law specifically authorizing and regulating these loans.

The House last month approved some significant changes in the cheap payday loan law, including giving an extra 12 weeks to those who cannot make their checks good within two weeks, all without additional interest. But McClure, who helped craft that language, said she is now convinced that won’t do any good.

“With the way that they perennially get around our laws and regulations in the state of Arizona, I now believe the only thing you can do is to eliminate the payday lenders,” she said.

One potential flaw in McClure’s proposal is it bans only a specific type of loan. She acknowledged lenders would still be able to provide short-term, high-interest faxless payday loans - as long as they did not involve holding a check for deposit.

“I can’t address every ill of the world,” she said. And McClure said she retains the option to alter the wording, perhaps putting an absolute cap on annual interest rates.

She said, though, that outlawing this type of loan would have at least one benefit: She said the payday loan stores “will not be on every street corner.”

If the measure makes the ballot and becomes law, it would give the payday cash advance industry a year to close up shop: It would take effect Nov. 1, 2009.

McClure has picked up some bipartisan support, including getting Rep. Steve Gallardo, D-Phoenix, to co-chair the initiative drive.

Miller said the instant cash loan lenders he represents have not had a chance to decide how to respond to the initiative, including whether - and how - to fight it or perhaps to offer their own alternative.

This entry was posted on Tuesday, May 15th, 2007 at 6:04 am and is filed under Arizona.