Critics call Prop. 200 a trap, not payday loan reform
by Garry Duffy on Oct. 02, 2008, under Edge, Elections, LocalIndustry lauds consumer choice; critics cite high interest rates
Ex-customer Diane Robles stands near one of the payday loan stores located throughout Pima County.
Would you knowingly take out a loan with a potential 391 percent annual interest rate that included allowing the lender to electronically raid your bank account for payment?
That’s what critics say Proposition 200 will allow – forever – if voters on Nov. 4 approve the initiative written by the payday loan industry.
“They are thieves stealing from the most vulnerable,” Methodist Bishop Minerva G. Carcano, president of the Arizona Ecumenical Council, said recently.
Without approval of Proposition 200, a state law allowing payday loan firms to charge annual interest rates of up to 459 percent will expire in July 2010. The firms have more than 700 stores in Arizona with more than 110 of them in Pima County.
Payday loan industry spokesmen say their businesses could not survive if a ceiling for combined annual interest rates falls to 36 percent – the allowable interest rate for all other lending institutions in the state.
Proposition 200 is being marketed as a reform of the payday loan industry. Households across Arizona are being blanketed by glossy mailers with messages that advertise it as providing “more consumer protection,” and as “preserve financial choice.”
Critics condemn the campaign as a cynical and false last-ditch effort to maintain an industry that charges ruinous interest rates on loans to segments of society who can least afford them.
Some customers of payday loan stores recently spoke out about their experiences.
“At one time, I had five payday loans out totaling $500 each,” Diane Robles said at a recent forum on Proposition 200 sponsored by the Primavera Foundation.
She would need to take out loans at different payday loan stores in order to pay back the ones due at other payday loan locations, Robles said.
Payday lenders are required under the current law to ask if customers have other outstanding payday loans – but they don’t, Robles said.
A local government employee, Ivan Polanco, and his wife were strapped for cash and borrowed $300 and paid back $349 two weeks later.
“That prevented us from being able to pay the electric bill,” he said.
So they borrowed more and things began snowballing.
“If a friend had not bailed me out, I’d still be in the payday loan debt track, paying $328 a month interest to forever extend $1,000 in loans,” Polanco said.
Backers of Proposition 200 say today’s tight credit market limits the options of many Arizonans in getting loans, especially emergency ones, and that payday loan stores offer that opportunity.
“The payday lending industry in Arizona serves an important function as a simple, convenient, and less costly place for people to borrow money when the short-term need arises,” Stan Barnes, a former state legislator and spokesman for the payday loan firms backing Proposition 200, said recently.
Barnes said payday loans, even with the interest penalties and rollover charges for late payments, can cost less than repeatedly bouncing checks at banks, paying deposits to have utilities turned back on, and paying penalties on credit cards.
Robles said such an argument ignores that many cannot keep up economically, even with austere budgets.
“They really market to people who are desperate,” Robles said. “You don’t think about the future when you are desperate.”
Robles maintains that her only avenue to get out from under her debts to payday lenders was to file for bankruptcy so she could save her home.
Most Americans no longer have that option after Congress several years ago rewrote federal bankruptcy laws to make it much harder for debtors to seek court-supervised repayment or debt cancellation plans.
Pima County payday lending stores take in about $130 million a year, and go to the parent companies of payday lending stores – none of which are based in Arizona, David Higuera, of Arizonans for Responsible Lending, said Wednesday.
Wyatt Spencer worked at a Tucson payday loan store for more than a year several years ago.
Conflicts with college and other employment caused stress, Spencer said, but not as much as the experience of working at the payday loan store.
“It became pretty clear that we weren’t really helping anyone with what we were doing,” Spencer said Wednesday.
“We had many customers would come in to re-advance the same loans over and over. They were just paying the fee on the original amount they borrowed,” Spencer said.
“They couldn’t pay off the principal at all. When they got totally tapped out, they had no other place to go,” he said.
The Pima County Board of Supervisors has taken several public stands against the payday loan industry, most recently in a resolution last month.
Board Chairman Richard Elías said supervisors “wanted to reinforce” their public opposition, especially at a time when tight economic conditions may induce consumers to visit payday lenders out of desperation.
Proposition 200′s language would allow payday lenders to electronically access bank accounts to recoup principal and interest on loans.
When asked if such a provision will be written into payday loan contracts if Proposition 200 is approved by voters, Barnes said: “That will depend on the company.”
Critics disagreed with Barnes.
“They can just go in and pull off your bank account,” said Ken Clark, manager of the No to 200 campaign.
The industry has at least $12 million to convince voters to pass Prop 200. Barnes said additional money will be spent for TV, radio, and print ads as the election draws closer.
———
More information
Proposition 200:
www.azsos.gov/election/2008/Info/PubPamphlet
For Propositon 200
Against Proposition 200:
Who is opposed to Proposition 200?
www.200isnoreform.com/endorsements
Who is in favor of Proposition 200?
www.affr2008.org/testimonials.html
———
MEETINGS
Meetings on Proposition 200:
• 6 p.m. Tuesday at the Joel D. Valdez Main Library, 101 N. Stone Ave.. Backers and critics will debate the measure.
• 6 to 8 p.m. Oct. 14, the Social Justice Education Project, a young filmmakers group sponsored by the Primavera Foundation, will show films it made about Proposition 200 at the Gallagher Theater, Student Union Memorial Center, 1303 E. University Blvd.
———
