Unable to keep payday loans legal in Arizona, lenders are making a last-ditch plea to get lawmakers to approve an alternate plan to keep them in business beyond June 30.
Legislation set for debate Wednesday would alter existing laws on consumer loans to let lenders charge an origination fee of up to 7.5 percent for loans up to $1,000. That is 2.5 points higher than current law.
They also would be able to charge a new $10 fee for preparing documents on collateral and obtaining a credit report.
But they would have to live under the existing laws which limit the annual percentage rate that can be charged under the loan itself to 36 percent.
Lobbyist Lee Miller who represents Arizona Consumer Finance Services of Arizona, said payday lenders realize their industry effectively is dead in Arizona. “They got the message,” he said. “They understand what’s acceptable for making loans is 36 percent annual percentage rate.”
That’s what’s permitted under the consumer finance laws now. But with the changes Miller wants, the actual charges will be more — though not as high as on payday loans.
Under a payday loan, someone who needs $500 for up to two weeks has to write out a check for that amount plus a fee of $17.85 for each $100 borrowed. That comes out to $89.25 for that two-week loan, an annual percentage rate of more than 400 percent.
A direct comparison to what Miller is proposing isn’t possible, as consumer lending laws require these loans be at least one month long with multiple payments. That, he said, effectively precludes loans shorter than one month.
So someone borrowing $500 for two months, with a payment at the end of each month, would have to pay $37.50 for the origination fee, another $22.62 in interest plus the $10 document preparation fee, for total charges $70.12.
Sen. Debbie McCune Davis, D-Phoenix, who has led the fight to kill payday lending, said she had not seen what the industry is proposing. But she said she already does not like it.
“It’s still predatory,” she said. And McCune Davis said she’s particularly suspicious of this last-minute push by the payday lenders.
“They’re doing what we knew they would do all along, and that is try to find loopholes to stay in business,” she said.
They also are using a procedural maneuver of a “strike-everything” amendment that will be considered Wednesday by the Senate Finance Committee. That would strip the new language onto an unrelated bill which already has been approved by the House.
That means just a single public hearing on the issue: If the committee approves, the bill goes to the full Senate and then back to the House to concur with the changes, with no need for an additional hearing there.
Payday lending exists only because lawmakers in 2000 agreed to a special exemption from the 36 percent interest cap for what are called “deferred presentment transactions.” That permits the $17.85 fee for each $100 borrowed for two weeks.
But lawmakers agreed to have that special law self destruct after 10 years, a move designed to force them to revisit the issue. That 10 years is up June 30.
An industry-financed initiative to keep payday lending alive was defeated in 2008 by a 3-2 margin. And the Senate Appropriations Committee just last month killed a similar plan.
Miller called this new proposal a “back to the future” plan.
He said that consumer finance loans were the only option for small loans before payday lending, with firms like Household Finance Co. having storefront presences throughout the state.
Payday loans weren’t the only thing that killed consumer lenders, Miller said. He said loose lending practices by banks in the 1980s made it easy for just about anyone to get a credit card.
While consumer lending has all but disappeared, the laws regulating it remain — the laws Miller now wants to alter. Miller said the payday lenders can live within those laws — with the additional fees.
He acknowledged that payday lenders who have invested in retail outlets in Arizona area are interested in doing what they can to stay in business. Miller said they believe this proposal, if adopted, would generate enough cash.
Many payday lenders have other lines of business, including title loans, check-cashing services and acting as agents for the Motor Vehicle Division to register vehicles.