Local opinion: If it looks like a loan, it's a loan

Who is looking out for the little guy? For you and me?

I am an attorney who has represented low-wage workers who often have to fight to get paid for the work they’ve done. These employees are particularly vulnerable, but the experience of a paycheck that doesn’t stretch to payday is not unique. For many Arizonans, their pay doesn’t meet their monthly expenses like rent, groceries, and childcare. When that happens, there are plenty of “lenders” willing to provide high-cost loans to fill the gap.

Remember when AZ lawmakers allowed 391% APR payday loans? We, the people of Arizona, got rid of those loans because they were predatory. But companies with cash are always thinking of new ways to catch you up in a debt cycle.

This year at the AZ legislature, the small loan industry is promoting a product called “Earned Wage Access” (EWA). These direct-to-consumer lenders have nothing to do with your employer or your wages. It is not an advance on wages. It is a loan. These companies require you to provide access to your bank account so they can withdraw the money borrowed as soon as it hits your account. This cash is accessible via a smart phone app, so it is easy to acquire. A CNBC article written Jan. 28, 2024 calls them, “Payday Loans on Steroids.”

Workers need to pay attention to the details. These companies claim they don’t charge interest, that they shouldn’t have to report an APR, and that they can’t make money unless borrowers pay sky-high fees. These loans are usually small dollar amounts — typically $75-$100, with fees of up to $7.50 per transaction.

Think about it this way. You need three hundred dollars to make it to your next payday, so you download one of these apps. The lender won’t let you take out more than $150 at a time, so you must make two transactions at $7.50 each. Plus, they ask you for a tip. Basically, you have paid $15 to borrow $300 for two weeks.

The next time payday rolls around, Earnin takes that $300 from your checking account. But your job still isn’t enough to pay your bills, and now you’re $300 down. So, you borrow it again. You pay $15 in fees again, and maybe $4 in tips.

This is how the debt cycle starts. Now, every time you get paid, you have to borrow that same $300. And pay at least $15 in fees. By the end of the year, you’ve paid $390 to borrow that same $300 over and over again.

The companies selling these products don’t call them loans because then they would be exempt from Arizona consumer protection laws. These include protections against fraud and deceptive practices including failure to provide accurate information about the borrowing terms and misleading advertising. Arizonans have common sense. We know if something looks like a loan, talks like a loan, and walks like a loan, it’s a loan.

Passing an Earned Wage Access bill will let payday lenders back into Arizona. They’ll just have a different name this time around.

We do not want to eliminate all such products. We get it — there is a need for some extra cash at times. But no exemption from the laws that protect us from being cheated should be granted. If you are as outraged by this latest scheme to cheat workers as I am, tell your state legislators. Let’s make sure Arizona’s consumer protections laws apply to all small loan lenders fairly and without exceptions.