Essay #2 Prop 200 Payday Lending

Proposition 200: Payday Loan Reform
Proposition 200 is a measure on the 2008 ballot for Arizona. The claim of this measure is that this proposition would preserve small short-term loans, known to the public as payday loans. Through rate cuts, the elimination of loan extensions and a new repayment plan. A “yes” vote would repeal the termination date of July 1, 2010 for the existing payday loan licensing program allowing it to continue indefinitely, allowing payday loan services to provide electronic debit services over 35 days. That means that if the borrower goes over the period of 35 days given to pay the first loan back, they do not have to buy a second complete loan that would include the interest they have already accumulated on the first loan. This measure would also require payday loans to be printed in English and Spanish, prohibit certain fees, permit only one payday loan per customer per day, give the customer a payment plan if requested, and prohibit customers with outstanding loans to apply for new loans.
For me personally a NO vote should be the only vote. The funding for proposition 200 is provided entirely by the payday loan industry. This fact alone should be enough reason for anybody to vote no. Proposition 200 is not reform that works for the people that use them. The measure is written to seem like it is helping the public but in fact it is only helping the industry. I believe that this industry is taking advantage of the very people they are supposed to be helping. The people that utilize the payday loan stores are usually fall into the lower class income bracket. Most are individuals who often do not have a clear understanding of what they are getting into. They are often in desperate situations, lacking financial education and most speak very little English. These are the people this industry is preying on.
The values at stake here are not cheating vulnerable people. The people go into these stores attempting to relieve some financial burden they are in. While in the end they are further in debt than they were when they went in. This system of payday loans is a revolving door for the people that use them. The ultimate value is to put into place regulations on payday loans that work for not just the industry but for the people that use them.
The competing positions are the advocates who claim that this proposition will make sure payday lenders are tightly regulated, more consumer friendly, and remain available to serve those people who need a small, simple to understand, short-term loan." "This measure will bring dramatic pro-consumer reform to payday lending and preserve consumer choice."
There are the opponents who say Arizonans have to pay interest rates on payday loans that far exceed the usury rate of 36% for all other loans in the state. This initiative would make 391% interest rates a permanent reality here. Other states have been successful in protecting their citizens by forbidding payday lending at triple-digit interest rates, and Arizona must follow suit. Payday lenders have had free reign in Arizona because of a 10-year exemption from the state's 36% usury cap that the Legislature granted in 2000. Now they are using this initiative to try to extend the exemption indefinitely.
I interviewed Debbie McCune Davis for the opposing side of this issue. She is the author of the opposition for this initiative. I asked her to give me in terms that the average person could understand the reasons why we should vote no on prop 200. She said the following: Did you know that there are more payday lenders in Arizona than McDonalds and Starbuck combined? That is a startling fact. The Payday Loan Reform Act was written and funded by the payday loan industry. It was placed on the ballot by petitions circulated by people paid by the industry.
In 2000, the legislature authorized payday lending in Arizona by providing an exemption to the Arizona Consumer Loan Act, which set interest caps at 36%. The exemption, which expires on July 1, 2010, allows payday lenders to make short term (usually 14 day) loans at exorbitant interest rates ranging from 391-458 Annual Percentage Rate. They claim payday lenders charge fees not interest, therefore should not be subject to an APR calculation. The Federal Truth Lending Act requires all loan products to contain information about the annual percentage rate because it is the only consumers can compare loan products.
If Proposition fails, the Consumer Loan Act will return to it’s original status and all small loans under $15,000 will be capped at 36% on July 1, 2010. Payday lenders will choose between operating under the 36% interest cap or going somewhere else.
Proposition 200 is billed as a consumer reform measure. It is not. All of the reforms ion the initiative sound good but do not change the industry business model which is to keep people coming back for repeat loans. In Arizona as well as other states, the average payday loan customer takes out 9 loans per year abs often slides into a cycle of debt because the loan must be paid in full on the day it is due. A study in Texas showed that individuals who received payday loans were 9 times more likely to file bankruptcy than individuals who were denied loans. $140,000,000 leaves the State of Arizona and goes into the pockets of national payday loan chains every year. Proposition 200 protects the right of payday lenders to stay in business here.
Fifteen states and the District of Columbia have changed their laws to set caps on payday lenders, usually consistent with their usury laws. The Federal Congress limited payday loan companies access to military families by capping loans at 36%. The industry is fighting for its life in Arizona and Ohio with ballot measures that will allow them to continue to operate. Voters in both states are being bombarded with advertising imploring them t allow them to continue to do business and protect “consumers choice.”
North Carolina, as an example, eliminated payday lenders in 2005. The Superintendent of Banks commissioned a study conducted by the University of North Carolina. In the study, residents were polled to see if they considered themselves better off before or after payday lenders left the community. By a substantial margin, residents, including these who used payday lenders, said they considered themselves better off when payday lenders left the community. Short term loans are available through community lenders, at lowers rates and with longer time periods to pay off the debt. This was the model before payday lenders became so dominant.

On the flip side of the issue, one person said that “a high interest loan is better than a bounced check.” They indicated that some Americans are “fed up” with politicians trying to balance our check books “whether we like it or not.” (Testimonials) The word paternalism was used to describe the idea that the government has to look after adults that can’t do for themselves. “Personal responsibility is what makes adult life possible.” When payday loan stores were outlawed in Georgia a study by the Federal Reserve Bank of New York indicates that the fees for bounced checks grew by $36 million and that bankruptcy filings rose almost 9%. This is good evidence for the advocate’s side.
Its evidence such as that that makes me question what is missing. There are two sides to this measure, for and against. Unfortunately there is no clearly stated resolution for the problem either way. The fact is there are people that use these payday loans responsibly. It’s too bad that there isn’t a better solution for the people that really need them.
When evaluating the evidence for and against this issue I found that the most persuasive evidence came from the opposing side. The people working against prop 200 are doing it for the people of our community who cannot ask the industry for reform themselves. They are legislators, community activists, and labor union members. They are campaigning against because it’s what right for the people. Nobody has paid them $13 million dollars to vote no.
I don’t know how anyone can vote Yes knowing that the evidence being presented by those in favor is being funded by the National Payday Loan Coalition. According to the No on 200 campaign which is being outspent by nearly 95-to-1 ratio, backers of Prop 200 have spent nearly $13 million on trying to persuade voters to approve the measure. Of course they want a Yes vote. The industry is facing the threat of going out of business. This is a proposition drafted by the payday loan industry. Scott Earl, chief executive of the Arizona Credit Union League said “the fact that a group can come together and write its own law and pass it as reform and (that) the Legislature can’t touch it is just a frightening prospect.” (McCune-Davis) They would love nothing more than to continue their current practices without reform. When casting their votes on November 4th the voters of Arizona must be able to decipher the evidence and make a decision based on just the evidence and who is providing it.
In my research on this topic I found an overwhelming amount of evidence against the payday lending industry. The reality seems to be that this industry only benefits itself. I’ve seen no testimonials from any person stating that their lives were devastated by not being able to obtain a payday loan. There are however many cases of people that have had their lives destroyed by their inability to repay the loans in the time allowed. There are alternatives out there for the payday loans. Every government across the US should take the initiative and get a measure on the ballot in their states and put a stop to the abuse.