LINDA VALDEZ

Valdez: Payday loan redux lost the first round

Linda Valdez
opinion columnist
People without credit deserve options beyond high-interest loans

Predatory loans lost the first round at the Legislature. But don’t count ‘em out. Not yet.

And apparently you shouldn’t call them “predatory,” either.

Sen. John Kavanagh says loans that result in triple-digit interest rates are not predatory.

“That's a spin word,” he told the Senate Finance Committee Wednesday.

Fortunately, the committee rejected Kavanagh's spin. It voted against the “flex loan” bill that represents the latest attempt to flout the will of Arizona voters who banned payday loans 2008.

Valdez: Payday loans are back with a new name

Republican Sen. Kimberly Yee voted no after saying the bill didn’t “feel right.” It could lead people on a “downward spiral of financial crisis,” she said. She did note the need for “fast loans” that have reasonable rates. And she's right.

Democratic Sen. Steve Farley voted no as well, saying it “ought to give us pause” that federal law bars active military personnel from getting this type of high-interest loan.

“If deemed dangerous to our military, we ought to deem it dangerous to people in poverty in our state,” Farley said. Democratic Sen. Lynne Pancrazi cast the third no vote.

Voting for it were Republicans Sen. Steve Yarbrough and Sen. Debbie Lesko. Kavanagh and Lesko are sponsors of SB 1447, along with Republican David Gowan, speaker of the House and candidate for Congress.

These are high-powered supporters. The bill is likely to return later in the session under a different wrapper.

It’s worth remembering why it was shot down in committee with a bipartisan vote.

Those testifying against the bill included Sam Richard of Protecting Arizona’s Family Coalition. He said enabling a new type of high-interest loan is a priority of “well financed out-of-state lenders who are trying to add a tool to their tool box.”

Kavanagh, on the other hand, says this is about providing a service that people need. He buttressed his assertion with a slick video produced by the Arizona Financial Choice Association, which represents businesses that could benefit from having this tool in their tool box.

Others who testified against the bill include Kathy Jorgensen, who said she works with the “poor and marginalized” at the Society of St. Vincent de Paul.

She told the committee these loans are a “debt trap” to people who are “very unsophisticated and don’t understand” what they are getting into.

Arizonans know this.

“These are the very kinds of interest rates rejected by voters in 2008,” said Kelly Griffith of the Southwest Center of Economic Integrity.

Touted as short-term loans with monthly interest rates of 15 percent for secured loans and 17 percent for unsecured loans, few of these loans get paid off in a month’s time by people who are financially desperate enough seek this option, says Cynthia Zwick of the Arizona Community Action Association.

According to the Consumer Federation of America a $2,500 loan at the unsecured rate translates to 204 percent APR over 24 months, and would cost more than $10,000 to pay off. That doesn’t include fees.

This bill represents a cynical move to exploit hard-working Arizonans who have a real need.

People who do not have credit and live paycheck-to-paycheck can be desperate for a quick, short-term loan. Mom may have to fix the car so she can get to work. Dad may have cover the co-pay for a child’s surgery.

They need help. But they won’t benefit from being sucked into a high-interest debt trap.

There are better solutions.

The Wall Street Journal reports that the Consumer Financial Protection Bureau is trying to get banks and credit unions to offer small, short-term loans to people with low or no credit. That’s one approach.

Kavanagh and the other supporters of this bill profess compassion for people who need a quick loan for a family emergency. It that's the motivation, they should work with non-profits to come up with loan options that do not have the goal of making enormous profits.

They should find a better solution than legalizing usury.