Payday lending will be gone in Arizona in less than three months.
Industry lobbyist Lee Miller admitted late Tuesday he does not have the votes for a measure to allow continued lending above the 36 percent annual cap on interest that now exists for every other kind of loan. Even a last-minute compromise that would have trimmed the fees fell flat.
With lawmakers interested in ending the session this month, he said time had simply run out.
That means the special law which allows payday lending will be repealed, automatically, on June 30.
What that leaves for customers of payday lending is unclear.
Sen. Debbie McCune Davis, D-Phoenix, a key foe of the industry, said she believes other lenders, including credit unions, will step up to fill the void. She said they can operate under the 36 percent “usury” cap.
Miller said he’s not convinced those who now use payday loans will continue to find it easy to borrow money. He said the reason payday lenders have thrived — there are about 650 outlets in the state — is some people have no other alternatives.
Payday loans have operated outside the lending limits because they are technically not loans.
A 2000 laws allows “deferred presentment transactions.” Someone who wants to borrow up to $500 writes out a check for the amount sought plus the additional fee of $17.85 per $100 borrowed.
The lender provides the base amount to the borrower, with a promise not to cash the check for two weeks. That works out on an annual percentage basis to more than 400 percent.
But lawmakers, in approving that exemption, made it an experiment: They authorized the loans for just 10 years, with the idea of reviewing how they work in the interim.
Unable to get lawmakers to remove the “sunset provision,” lenders took their case to voters. That plan was rejected by a 3-2 margin despite a $14 million industry campaign.
A Senate panel killed a similar plan earlier this year.
Running out of time, Miller offered a last-minute deal: The lenders would live within the 36 percent interest cap. But they wanted to charge an “origination fee” of up to 7.5 percent of the loan, plus a one-time $10 document preparation fee.
Miller said he could not guarantee the votes for even that plan. And it was an open question whether Gov. Jan Brewer would sign the measure: She admitted voting against the lenders’ plan in 2008.
McCune Davis rejected the argument by Miller that the lack of any competitors proves there are no commercially viable alternatives to payday lending.
“As long as payday lenders are out there, they literally suck up all the oxygen,” she said.
“They are readily available and there are no questions asked,” McCune Davis continued. “So it’s easy for people to approach that type of loan because it’s not very complicated.’’
She said credit unions and banks will fill the gap — at least for those who have or establish relationships with those institutions.
“They will help people get appropriate loans and they will help them work their way out of debt,” she said.
But she sidestepped the question of what happens to everyone else.
“That’s not the issue here,” McCune Davis said. “We’re talking about people who do have relationships with lending organizations ... who will make products available.”
Pushed further, McCune Davis said those who now use payday loan stores “will be encouraged to deal with lenders who operate within the usury statutes.”
Miller said some payday loan stores are likely to survive beyond June 30. He said some are able to make money in other ways, including cashing checks and operating as agents for the Motor Vehicle Division.