Friday, May 5, 2006

The Arizona State Legislature overwhelmingly passed payday loan reform last week and governor signed it into law. But this is no cause for celebration, writes columnist Jim Kiser in the Arizona Daily Star. The only reason this piece of legislation is better than no bill is one provision that contains a small amount of value.

The benefits, however, apply only to members of the military. The majority of borrowers are ignored by its passage.

That is the bad news, but it gets worse yet. This bill allows legislators to claim non-existent win — something particularly important in an election year, especially when it pertains to the military.

Here is the sad reality: Some legislators may have deluded themselves into believing they passed a noteworthy bill. They likely would wash their hands of any future efforts to rein in companies that prey on vulnerable citizens with high-interest payday loan online offers.

Senate Bill 1006 passed the House, 53-3, and the following day, it passed the Senate, 22-4. Then Gov. Janet Napolitano signed it into law. There is no greater indicator of the bill's meaningless than the fact that the Arizona payday loan industry vigorously opposes every significant reform, yet its lobbyists were quick to support this law.

The law's sole, minimally useful reform prohibits companies from renewing loans to members of the military or their spouses. When people take out instant payday loans from short-term lenders, they write a check and date it two weeks in the future. Then when the two weeks are up, the borrower must come in with the money to cover the amount of the check.

If they don't have it, they extend, or roll over the loan. Fees pile up astronomically and the rest is history. While prohibiting companies from rolling over loans to the military should keep service members from getting trapped, there are two problems with that solution.

1. It inadvertently encourages payday cash advance providers to begin formal collection procedures sooner, including filing suit against defaulting borrowers. Consequently, hapless borrowers can end up saddled with court costs, as well.
2. There are ways around the law. Some quick cash loan firms essentially just ignore it, or borrowers will find a second lender and take out payday loans to pay off the original lender. Arizona law doesn't allow this activity, but there is no database that lenders must check,or a punishment for ignoring the law.

Some believe the the no-rollover provision for members of the military may open the door to expanding the prohibition to include civilians in a year's time. That would be a good step, but a better one would be to eliminate the no faxing payday loan industry altogether. It would be an encouraging victory for justice if the Legislature would do just that.

This entry was posted on Friday, May 5th, 2006 at 10:32 am and is filed under Arizona.