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PHOENIX — Voters apparently don't want to keep payday loans legal in Arizona.

In one of the most expensive campaigns in state history, the lenders sought voter approval of Proposition 200 to permanently protect their right to operate in Arizona, but the effort was failing by a 3-2 margin.

The lenders had collected more than $14.6 million, second only to the successful $21.1 million Indian gaming campaign by Indian tribes in 2002.

State law caps allowable interest at 36 percent a year.

In 2000, however, lawmakers agreed to create a special exemption for payday lenders, allowing them to accept post-dated checks for fees that amount to 450 percent interest.

That exemption, however, expires July 1, 2010. Lenders went to the ballot after lawmakers refused to extend that.

Industry lobbyists said prior to Tuesday's vote there is no way to offer short-term, no-collateral loans at that 36 percent annual interest rate. Without a change in the law, they said, the lenders cannot operate in Arizona.

Defeat does not mean the immediate closure of payday- loan stores.

Industry lobbyists could still try to persuade lawmakers between now and July 1, 2010 to allow them to continue to operate.