Proposition 200: Payday loan reform act

Supporters call Proposition 200 the "Payday loan reform act," but in reality it is the payday loan extension act, since today's state law will terminate all Arizona payday loan licenses on July 1, 2010.

But if voters approve Prop. 200, payday loans, at 10 times the interest rate normally allowed by law, will continue indefinitely.

In its simplest form, payday loans occur when a consumer, short of cash, gives a payday loan service a post dated check, and in return gets immediate cash.

Under Prop. 200 the fee is $15 for every $100 borrowed or roughly 360 percent on an annual basis. And there is no refund if the check is redeemed early by the borrower. A new element in the law prohibits a consumer from getting a new loan until they have paid off the old one, and even then they must wait a day before starting the whole thing over again.

Supporters say that the fee is much less than a $25 or higher non-sufficient fund fees charged by a bank for a bounced check. And they say that safeguards, like not allowing a new loan to pay off an old loan, provide added protection to consumers.

They also say that the payday loan business provides an important service for people with limited financial resources and who need a few bucks so they can make a payment on time and avoid expensive late fees.

But opponents, from the AARP to the St. Vincent de Paul Society, say that payday loan businesses charge usurious loan rates that hurt the poor. And they point to a new element in the proposition, which allows for electronic account access by payday lenders, which opponents fear will allow for unlimited access and continuous fees being debited automatically out of borrower's accounts.

Arizona Attorney General Terry Goddard also pointed out that the industry is only allowed to exceed Arizona's 36 percent cap on interest rates, because of a 10-year exemption that expires in 2010. But if Prop. 200 passes, that exemption to Arizona's cap on consumer loan interest rates would become permanent.

The campaign to pass Prop. 200 could end up being one of the most expensive in Arizona history, with more than $9 million pumped into the campaign to encourage a "yes" vote, all of it from the Arizona Community Financial Services Association.

For more information, supporters can be found at www.ReformAZPaydayLoans.com and opponents at www.200isNoReform.com