Payday loan reform act is no reform

Arizona's Proposition 200, Payday Loan Reform Act, is confusing and overloaded with too many issues, chief of which is allowing interest rates far higher than existing state laws currently allow.

But during a hearing to amend the ballot description, Judge Sam Myers acknowledged that editing and value judgments had to be made to write the 50-word description voters will see, as required by state law, so he let the existing description stand.

It's not enough that the Arizona economy is reeling from the sub prime and "ninja"  industry slang for "no income, no job, (no) asset") loan debacles. Now, Arizonans are asked to enact questionable payday loan standards, excessively high rates and fees permanently into state law.

Warning: The ballot description does not provide a clear statement of the annual percentage rate computation payday loan operation will be allowed by law to charge, if this passes.

Lending is a powerful tool to improve anyone's way of life. Yet exorbitant interest rates and fees are ruinous. Horrifically, the payday loan industry is operating without adequate oversight and Prop 200 evidences of that.

The advertised $15 fee per $100 borrowed that voters will see is incomplete information, neglecting to mention that interest rates can run as high as 1,095 percent.

A University of North Carolina study showed that life was better without the onerous interest rates of the payday loans program.

Arizona has at best an inferred, yet neutered, usury law. But Arizona Revised Statute Title 6 is dependent on the federal Truth in Lending Act, Warner National Defense Funding Act and Fair Debt Collection laws. Title 6 establishes lending rates of 36 percent and 24 percent depending on the loan amount. But it doesn't cover payday lending rates.

Prop 200 and Title 6 do not comply with Federal Truth in Lending Act for payday lenders by using the word "presentment" instead of "loan."

Additionally, Prop 200 allows:

1. A sliding scale of interest rates from 1,095 percent on a five-day loan down to 195 percent on a 35-day loan.

2. Two unreferenced sub sections for computing scaled interest rates: one on the per $100 fee and the other on loan terms.

3. The voter is led to believe that the payday loan program is in perpetuity instead of scheduled to sunset in 2010.

Other Prop 200 issues related to oversight are truly problematic:

1. A new public ballot initiative will be needed to fine-tune Prop 200.

2. Existing state law prevents the Arizona Department of Financial Institutions (ADFI) from allowing public access to documents on loans and lenders.

3. ADFI admitted to not completing 1,597 routine mortgage banker examinations and resolving 312 alleged mortgage fraud complaints in its budget request in November 2007.

4. ADFI is not funded for new licensing and payday loan oversight assigned by Prop 200.

Judge Myers should have ordered a ballot description to include at least:

1. An APR rate chart with fees.

2. An inferred usury cap based on a presentment loan's variable term.

Last minute election pressures pale in comparison to confusing loan charges and interest rates paid by Arizona wage earners.

The legislature needs to:

1. Update and bring state law into compliance with federal lending laws.

2. Assure full public access to ADFI documents.

Arizona voters need to vote against Prop 200, the Payday Loan Reform Act; let the existing law "Deferred Presentment Companies" sunset; and, just say "Thanks, but no thanks" to another economic debacle.

Mike Durham retired after 31 years with the state of Arizona and holds two master's degrees. He was appointed to the Cold Case Task Force by Senate President Tim Bee and has lived in Ahwatukee Foothills since 1982. Durham can be contacted at mike.durham@durhammike.com.