House gives initial OK to new loan product pushed by payday lenders barred by 2008 law

The Arizona House gave initial approval Thursday to a bill allowing payday lenders to offer a new product after they were barred from operating in the state under a 2008 voter initiative.

The vote to approve Republican Rep. J.D. Mesnard's bill came after more than an hour of heated debate.

Democrats argued that voters wanted high-interest-rate loans barred from the state when they rejected payday lenders. Rep. Debbie McCune Davis, D-Phoenix, said House Bill 2611 gives "predatory lenders" the green light to return to Arizona.

"The community has been pretty clear in raising concerns about the return of predatory lending in Arizona," McCune Davis said. "It's not the community asking for this — it's the lenders."

The old payday loans were issued after a borrower handed over a blank check that the lender agreed to hold for a couple of weeks — until the borrower's next payday. They had interest rates and fees in excess of 400 percent a year. The new loans are unsecured, but opponents note that lenders often require direct access to a person's bank account so they can automatically deduct payments.

Mesnard, R-Chandler, said the new loans give people with bad credit an option to borrow when they have unexpected expenses. He said not allowing the new "flex loans" because some people might take on too much debt is bad public policy.

"I think it's interesting that we are assuming in most of the arguments here as I hear them that people are stupid. That they can't make decisions, so we have to make them for them," Mesnard said. "But if just because some people make bad decisions we're going to remove a product for everybody, that's not the right public policy. We've tried that - we've tried that with drinking."

In 2008, voters by nearly a 2-to-1 margin rejected a proposal to extend the law that allowed payday lenders to operate in the state. That forced the industry to shut down in 2010, and they have been unable to get lawmakers to approve a new entry for the lenders.

Current law now caps interest rates at 36 percent annually, plus a fee that tops out at $150 per loan. The new legislation, counting interest and daily fees, nears 200 percent interest, according to a Consumer Federation of American analysis.

The legislation is being pushed by payday lenders through a group called the Arizona Financial Choice Organization. Many of the same players spent $15 million in the failed 2008 effort to get voters to allow them to continue to operate.

If the bill is approved in a formal House vote, it will move to the Senate for action.