Efforts to shut down payday-loan industry look to 2008 ballot

The ballot proposal by Rep. Marian McClure, R-Tucson, would cap interest rates for short-term loans at no more than 30 percent plus the going prime rate, which is generally defined as the lowest interest rate banks charge preferred customers.

By contrast, payday-loan stores, with their two-week loans, high interest and loan roll-over fees, charge rates that can translate to close to 400 percent on an annual basis.

The decision to take her campaign to the streets comes as a result of McClure's inability to persuade her legislative colleagues to impose strict new regulations.

A House panel approved some alterations in the payday-loan law. But legislators have been unwilling to ban payday loans offered over the Internet, a practice McClure said is "as dangerous, if not more so, than Internet gaming."

To offset legislative intransigence, McClure, a former president of the Arizona Federation of Republican Women, is putting together a bipartisan coalition of volunteers to gather the 153,365 petition signatures she needs by July 3, 2008, to put the issue on the ballot.

In addition to the 3,000- member state Republican women's group, McClure said she already is talking with the group's Democratic counterpart.

Cynthia Fagyas, spokeswoman for the Arizona chapter of AARP, said her organization is also interested in pursuing the issue, though members want to see the final version of the initiative. And McClure is counting on support from such groups as Arizona Community Organization for Reform Now, which helped put the $6.75-an-hour minimum wage on the 2006 ballot.

Lee Miller, who lobbies for the Arizona Community Financial Services Association, said interest caps will kill the industry. "The price we charge is the price we have to charge to operate that business model in those locations and still make a fair profit," he said.

Payday lenders actually don't "loan" money but instead agree to accept a check they know is not good and hold it for up to two weeks. Borrowers can get up to $500, with the check written out for 15 percent more than that amount.

Miller said the effective interest rate payday lenders charge is much higher because these are short-term loans. By contrast, he said, even companies that issue a high-interest credit card "get to charge you interest 365 days a year, year after year after year, until you pay off your bill."

And he said the industry constantly needs to find new customers.

"We have no expectation that we're ever going to see you again once you've paid us off," he said.

The bottom line, he said, is the approximately 720 sites operated by payday lenders fill a gap in the market.

McClure is unconvinced.

"What did they do before payday loans?" she asked, which she noted were not legal until seven years ago.

"They went to family members, they went to friends," McClure continued. "Many times, they went to employers and got the employer to give them an advance."

And sometimes, she said, a cash-flow crisis just requires creativity.

For example, she said someone who needs a tire doesn't have to buy an expensive new one but instead could get a used one, good for even just a couple of weeks, taking care of the immediate short-term need.

While McClure has no real cash for the campaign, lobbyist Miller said he is sure the companies that operate the payday loan stores will spend whatever is necessary to defeat her measure.

McClure said she chose the floating cap tied to the prime rate because it is impossible to predict inflation and the economy. She noted that the prime rate hit 21.5 percent in 1980.

She said her opposition to Internet payday lending is based on its ease.

"With the stroke of a key you could get a payday loan," she said. "You could also take 10 of them in one morning," which she said is "totally too dangerous for the average person."