Arizona’s payday lending industry is worried, and for good reason. New legislation will eliminate payday loans in Arizona as of 2010. In response, payday lenders have begun an initiative drive to retain their rights to do business in the state of Arizona. Current Arizona laws regarding check cashing loans and payday loans is a bit confusing. Moreover, two different initiatives are potentially headed for the fall ballot regarding payday lending in Arizona. The first is from the lending industry and presents a variety of limits and regulations on their industry. The second is from Representative Marion McClure and would ban all payday loans in the state.
In 2000, legislation was passed which allowed for deferred presentment transactions. These are, in all practical terms, payday loans. The customer wrote a check for the loan amount of up to $500 and a fee of approximately 17.5% to not be cashed until his or her next payday. This fee creates an APR of more than 300% while most Arizona loans are limited to an interest rate of no more than 36% annually. The current law also requires that customers have no more than one deferred presentment transaction outstanding and that lenders ask about this before loaning funds.
What would the new initiatives do to payday lending in Arizona? Both need the signatures to get on the ballot between now and November. The lender’s initiative proposes a plan to allow for interest free loan extensions to stretch payments over four consecutive paydays or for a period of four months if an individual is unemployed. This would eliminate the practice of rolling over loans and allowing debt to further snowball with additional fees. Furthermore the plan would cut the maximum allowable fee from 17.5% to 15%. A registry preventing those who did not repay a loan from taking out another would also be created by this ballot initiative.
Representative McClure offers an alternative to the solutions offered by payday lenders, and it is a simple one. Stop payday lending. This ballot initiative would eliminate payday loans in the state of Arizona altogether. Efforts by McClure and others to further regulate the industry did not make it past the Arizona state senate last year, so this is the new effort to offer a simple solution to this problem.
While both of these initiatives would reduce some of the predatory damage done by payday lending, as to which you feel is best? That choice will be yours, and if you are an Arizona resident it is unlikely that you will be able to avoid discussions and petitions about the state of Arizona payday lending.