Payday Loan Times

Kelly Griffith is deputy director of the Southwest Center for Economic Integrity; Don Carson is vice president of the nondenominational Little Chapel of All Nations.

The Arizona payday loan industry is under public criticism like never before, and the power of repeal or reform is in the hands of the Legislature. The question is whether House and Senate leaders will allow key measures to clear committees and receive a vote of the full membership.

A floor vote is the only way to take the issue out of the back rooms and make legislators publicly accountable to their constituents.

In recent years, the subject has been confined primarily to hallway conversations between fast payday advance lobbyists and legislators. Lobbyists have controlled any change because they were privy to and essentially part of the daily process.

In the seven years since the industry won exemption from the state’s 36 percent usury limit, the number of predatory storefront lenders has skyrocketed to about 775, many within blocks of each other.

The prize is a booming business catering to people desperate for small sums of money.

These customers are embarking on a cash advance path that often means an annualized interest charge of nearly 400 percent.

It’s time to shut down these predatory lenders. It’s time for our elected officials to take a stand for economic fairness and justice. For too long, industry lobbyists have guided backstage tinkering with the law to provide the appearance of reform.

Payday loans are short-term, usually for two or four weeks, and are backed by the borrower’s post-dated check. Because they are sought by people with limited means, they frequently cannot be repaid on time and must be renewed.

If they need the money this week, what is to suggest they can pay it off with their next paycheck?

Studies have shown that 90 percent of the borrowers enter a cycle of repeat borrowing. For some, there is no end. The New York Times recently told the story of a New Mexico man who pays $1,500 monthly to cover the interest cost of what he had intended several years ago to be short-term, online cash loans.

One study found that borrowers averaged eight payday loans a year from a single lender, paying, on average, $776 in charges to acquire $355 in loans.
Clearly the system hurts those who can least afford it.

Congress and President Bush recognized this last fall, and a federal law now prohibits payday advances costing more than 36 percent APR to members of active military and their dependents.

That law, however, ignores the vast majority of payday loan customers, most of whom receive small paychecks.

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