Lobbyists fight to keep payday lending legal

PHOENIX — Rejected by voters and stymied in the House, lobbyists for payday lenders are now trying to get a Senate panel to approve legislation to keep the industry alive beyond June 30.

But now there's a sweetener: They're offering to set aside an estimated $1.5 million of their proceeds each year for community-based organizations that help the needy.

That still may not be enough to corral the votes they need to keep the doors open. Most Democrats and several Republicans already have announced their opposition to extending the life of a special law that allows lenders to charge what would be the equivalent of 400 percent interest on an annual basis.

Gov. Jan Brewer, facing a tough re-election campaign, has not taken a position on the bill. But press aide Paul Senseman said Brewer voted against the 2008 lender-sponsored initiative to keep payday lending legal, a measure that went down to defeat by a 3-2 margin despite $14.7 million in industry spending.

With the law allowing payday lending set to expire June 30, that leaves legislation as their only remaining option.

House Majority Whip Andy Tobin, R-Paulden, sponsor the necessary legislation.

But Tobin pulled the plug when it became clear that not a single Democrat on the panel would support it. Tobin said he did not want the issue of high-interest, short-term loans to be a Republican-only plan.

Sen. Russell Pearce, R-Mesa, has agreed to strip it on to an unrelated measure when the Senate Appropriations Committee meets this coming Tuesday.

"I'm a free marketeer,'' Pearce told Capitol Media Services. And Pearce said he has no qualms about having the measure clear the committee he chairs on a strictly party-line vote.

"If you want to go out and get a bad loan, you have a right to go out and get a bad loan. People have a right to make choices, even bad choices.''

He also said the industry offers what amounts to "a loan of last resort for some folks'' who cannot borrow money elsewhere.

But Pearce said he's no fan of the practice. "I would hope they don't use it. Would I use it? Absolutely not.''

Sen. Debbie McCune Davis, D-Phoenix, said no one should be able to take those loans.

Prior to 2000, loans with annual interest rates of more than 36 percent were illegal. That year, industry lobbyists convinced lawmakers to approve "deferred presentment transactions.''

A borrower writes a check for up to $500 plus a fee of up to $17.85 per $100 borrowed, a check both parties know is not good. The lender advances the money, minus that fee, with a promise not to cash it for up to two weeks.

But lawmakers, cautious about the new loans, agreed to only a temporary trial: The exemption from the 36 percent interest cap disappears June 30.

Industry lobbyist Lee Miller said this measure is different than what voters rejected in 2008.

While the fees would be the same as offered then - $15 per $100 borrowed - there would be a database to enforce a provision designed to prevent borrowers from having multiple payday loans out at once and to prevent rollovers.

And lenders would have to provide 1.5 percent of gross fees to community organizations to maintain their state licenses. Miller said that $1.5 million estimate is based on Colorado, which has a similar number of payday loan stores.

Miller said he understands that $15 per $100 fee amounts to 391 percent on an annual basis. But he said that, for some people with no or limited access to credit, it is preferable to alternatives.

"Payday customers know exactly what they're doing, know exactly what the cost is for a payday loan as opposed to the cost for a bounced check or the cost for going over their credit card credit line,'' he said.

McCune Davis countered that a New Mexico study found that 97 percent of those who took payday loans had lower cost alternatives. And she said others are ready to fill the gap if the payday lending law expires.

"I've talked with a number of credit unions that are ready to work with people to get them through short-term financial crises,'' she said. "They have a process in place and are open to it.''

Miller said no one can make a two-week loan at the 36 percent interest cap - especially one that is not secured - without losing money.

Even if the industry gets a majority of lawmakers and the governor to go along, payday loan shops likely will have to shutter, at least temporarily.

A simple majority vote enacts a law 90 days after the regular legislative session ends. And at this point the earliest lawmakers are likely to wrap up their business is the end of April.

It would take a two-thirds vote of both the House and Senate, as well as the governor's signature, for immediate enactment. The number of lawmakers who already are lined up in opposition virtually precludes that from happening.