The payday lending industry doesn't want you to know it, but when it comes to protecting paychecks at the Arizona ballot box this November, "no" will mean "yes"—yes to capping payday loans at 36 percent once and for all.
The signature-gathering period ends today for a ballot initiative from the payday lending industry. In less than four months, payday lenders have spent nearly $2 million to create a smokescreen around their attempt to legalize predatory payday lending in Arizona forever. Similar desperate industry tactics have so far failed to undo recent payday lending reform in Ohio. By using vague and misleading language, the industry is concealing the fact that voters may have the opportunity in both states to choose between a reasonable interest rate cap for small consumer loans and what payday lenders typically charge – 400 percent interest.
In Ohio, the state legislature overwhelmingly passed and the Governor signed a 28 percent annual cap on small loans last month. The national trade group for payday lenders immediately announced plans to file a voter referendum overturning the cap and protecting their triple-digit interest rates. The Ohio Attorney General turned back their first attempt, saying that the lenders collected signatures with proposed language that was unfair, inflammatory, and not truthful – the lenders failed to mention that their real aim was to repeal the interest rate cap.
"They didn't even mention the 28 percent cap, nor the 400 percent rate they usually charge their customers for loans they can't afford to pay off," said Suzanne Gravette Acker, spokesperson for COHHIO, an Ohio nonprofit working to protect Ohio's new reform. "Is that giving voters a real choice? No. It's trying to trick people into voting for a practice that unfairly strips weekly pay from people who are barely making ends meet."
According to Arizona campaign finance reports, the trade group for payday lenders has contributed $2.9 million to the ballot initiative committee. In a report filed June 30 covering the period up to May 31, 2008, the Arizona committee had already spent $1.9 million in its campaign, collecting 265,000 signatures supporting their proposal.
They failed to mention in the petition summary that their proposal would legalize 391 percent interest rates and cancel the expiration of the abusive practice of making loans at exorbitant rates. The 2000 Arizona law exempting payday loans from the 36 percent cap on consumer loans and authorizing loans based on unfunded checks expires in two years, but the initiative would eliminate the sunset and allow payday lending to continue forever.
"This industry takes the windfall it creates by making the same high-cost loans over and over to the same cash-poor borrowers and pours it back into buying signatures to preserve their legal status in Arizona," said Jean Ann Fox, Director of Financial Services for the Consumer Federation of America and member of the steering committee for Arizona's Stop Payday Predators (StopPaydayPredators.com). "Voters will have the opportunity to put an end to check kiting for quick cash and restore fair lending laws to Arizona by voting 'No' this November."
Congress capped interest rates at 36 percent on payday loans to military families in 2006 after the Department of Defense testified that payday and other high cost lending was threatening national security. Since that federal law took effect in 2007, Oregon, DC, New Hampshire, Arkansas and Ohio have joined a dozen other states that were already enforcing a two-digit cap to control predatory lending.
In 2000, the state legislature gave payday lenders a trial exemption from the 36 percent cap. The exemption expires in 2010, and in the meantime, researchers have established that payday lenders are not truly in the business of making short-term cash advances as they claim. They typically charge about $50 in interest every two weeks on an average $325 loan, but they repeatedly flip the loans—either rolling them over for another two weeks on the borrower's payday, or in states where rollovers are illegal, repeatedly closing the loan and then re-opening it immediately or within a few days.
"The payday lenders have titled their ballot initiative the 'Payday Loan Reform Act,' but that's just pure deception," said Debbie Goldstein, executive vice president of the Center for Responsible Lending. "It would actually prevent authorization of an abusive practice from expiring and permanently legalize a practice that costs Arizona families $140 million every year in fees they had never planned to pay."
"Arizonans who get payday loans are trapped," said Goldstein. "They borrow once intending to pay the loan back immediately because it is so expensive, but they don't count on the fact that the deck is stacked against them. The lender knows that rather than be able to pay it back, the borrower will be forced to borrow over and over, paying hundreds of dollars in interest to borrow a few hundred. And when all is said and done, they end up in worse financial shape than when they started."
Ninety percent of payday lending business comes from borrowers with five or more loans per year, a Center for Responsible Lending report found. Over 60 percent comes from borrowers with 12 or more per year. The one-time two-week loan is rare. A two-digit interest rate cap in the vicinity of 36 percent is the only reform that has kept the debt trap from working, and has opened up markets for affordably-priced consumer loans.
For more information, visit http://www.200isnoreform.com, the web site of Arizonans for Responsible Lending.