Lawmakers must step up to rein in payday lenders
Our view: A fine first step would be to reject SB 1446, a bill that won't adequately regulate a predatory industry
Now that the Arizona House has given preliminary approval to a bill that could make payday lenders a permanent fixture in the business community, legislators are nearing a moment of truth. They can either take a stand against predatory lending or look away as financially strapped families fall victim to legalized loan-sharking.
Howard Fischer of Capitol Media Services reported in Tuesday's Star that the House has tentatively approved Senate Bill 1446. A final vote in the House could come any day, after which the strike-all measure would have to go back to the Senate.
SB 1446 would enact some reasonable restrictions on the payday-loan industry, such as prohibiting expensive loan renewals and instituting a three-month payment plan, at the borrower's request, if he or she cannot pay back the loan on time. It would also attempt to regulate the growing proliferation of online payday lenders.
The payment plan would effectively reduce the interest rate on payday loans from about 400 percent annually to 52 percent, which is still higher than the maximum 36 percent interest rate cap the state imposes on other lending institutions.
However, the reason payday lenders are supporting the measure — and the reason the industry's foes oppose it — is that it eliminates the sunset clause in the 2000 law that legalized payday lending in Arizona. That law is set to expire in 2010, but SB 1446 would remove the sunset and allow payday lenders to remain in the state.
State Rep. Steve Farley, D-Tucson, tried to amend the bill Monday to reinstate a sunset provision, but his move failed.
"Some of us believe that having the sunset would incentivize the industry to continue talking to us," Farley said Tuesday. "We wanted to make the industry have to come back to report on whether the reforms are working and justify their existence.
"Not having the sunset kills the bill for me, and for many others."
An influential group that believes strongly in the sunset provision is the Southern Arizona Leadership Council, which is made up of leading business executives.
Earlier this month, the council's board of directors unanimously decided that it would oppose any change in law that eliminates the sunset clause for payday lenders.
The fact that a business group is taking a stand against a particular sector should send a strong message to legislators that payday lenders aren't an asset to the community.
The Legislature has two camps on payday lending. One side believes the industry is predatory in nature, charging high-interest loans to struggling Arizonans who can least afford the expensive loans.
The other camp believes payday lenders offer a necessary service that other lenders, such as banks and credit unions, fail to provide.
Rep. Bill Konopnicki, R-Safford, a supporter of SB 1446, told Fischer that payday lenders "fill a niche."
The argument that there is a market for payday loans is weak. There is a market for many things potentially harmful to the public — such as drugs and stolen cars — but we don't see lawmakers extolling the virtues of drug pushers and auto thieves.
Because there's a market for a product doesn't mean lawmakers should support that product.
Arizona lawmakers should do what is best for the community. And in the case of payday lenders, representatives should do everything in their power to see that the industry doesn't take advantage of borrowers.
Legislators can do that by rejecting SB 1446.
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