Payday Loan Times

Drew Wheeler said he depends on payday lending businesses to cash his checks but would never borrow money from the stores.

“I think they scam you here,” he said to The East Valley Tribune outside one of the dozens of payday lending stores that have shot up in west Mesa.

Although the 21-year-old Tempe resident doesn’t take out the short-term loans offered there, an increasing number of people in Arizona and elsewhere are turning to payday lenders. Many times, borrowers pay more in interest than the actual bad credit cash loan amount.

Now, some state lawmakers are looking to reform the practice that they see as legalized loan-sharking that preys upon Arizona’s low-income families.

Currently, 98 savings account payday loan lending companies operate 720 branches throughout the state, said Bruce Tunell, deputy supervisor for the Department of Financial Institutions. The number of branches is up from 615 sites 18 months ago.

Nationwide, the industry has exploded into a $28 billion-a-year business, ac- cording to the Center for Responsible Lending.

On Monday, the House Committee of Financial Institutions will hear a bill sponsored by Rep. Marian McClure, R-Tucson, that could change how the industry does business in the state.

A new registry that would record and track every payday advance loan in the state would be the most drastic change.

The list would be managed by the Arizona Department of Financial Institutions and prevent Arizonans and lenders from breaking the law, Mc-Clure said.

Borrowers who take out multiple high interest loans run the risk of falling into financial quicksand, McClure said. Although state law limits customers to taking out one loan at a time, she said it’s nearly impossible to track. And therefore, people go from one place to another.

“It’s a horrible cycle,” she said.

McClure also has proposed limiting the amount of interest that faxless cash advance lenders can charge. She said she has talked to people who have ended up paying 1,000 percent interest on a one-month loan.

Still, McClure said there could be a legitimate place for payday lending stores, which can help people make it through a short-term financial crisis, such as paying rent or buying groceries.

“I wanted to try to eliminate payday lending this year,” she said. “But there’s a part of me that says there’s a legitimate need.”

And with the proliferation of lenders online, she thinks it might be better to have stores operating in Arizona where the state can regulate them.

However, McClure criticized legislation approved in 2000 that cleared the way for providers of pay day loans to open shop in the state. That measure passed with overwhelming bipartisan support.

Meanwhile, Sen. Chuck Gray, R-Mesa, also has introduced a number of bills regulating payday lenders, including one that would effectively kill the industry in Arizona by capping the maximum interest rates businesses can charge at 36 percent.

Under state law, customers can only borrow $500 at a time. If businesses were capped at 36 percent, they would only make $15 per month in profit on a maximum fast cash advance loan.

Industry experts said that would make it nearly impossible to operate in Arizona.

“There is a segment of our population that is being preyed upon by these predatory lenders,” Gray said. “Some of these businesses end up charging 500 to 1,000 percent for these short-term loans.”

Gray also said his hometown of Mesa has become a magnet for these types of businesses. On the corner of Country Club Drive and Southern Avenue — where Wheeler was having his check cashed — there are two Arizona payday loan businesses on each side of the street. Both are open 24 hours a day.

However, Gray’s measure to cap the interest rates has been blocked by a lawmaker who supports the industry and questions Gray’s motivations behind crafting the bill.

Sen. Pamela Gorman, R-Anthem, the chairwoman of the Senate Commerce Committee, has refused to schedule Gray’s bill for a hearing. The proposal needs approval from committee before moving to the Senate floor for a vote.

“It’s my understanding that (Gray) doesn’t like the industry and that his bill comes from that,” she said.

Gorman said she’s looking forward to seeing the House version but would not say whether the personal loan bill would get a hearing in her committee should it pass in the House.

“I personally don’t think it’s a wise decision to get one of these loans,” she said. “But when you consider the other options like not being able to pay rent, it might be a better choice.”