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Public Forum  

Payday Loans: Helpful or Harmful?

Sunday, April 6, 2008
3:00 p.m. in the sanctuary

This is event is free, and the public is welcome to attend.

In 2000, the Arizona state legislature made it legal for lenders to make payday loans. These loans are for $50 to $500 dollars and are secured by a post-dated check for the amount of the loan plus interest. The interest charged on these loans is 15% for a two- week period; that’s an annualized interest rate of 390%. It’s estimated that Pima County residents pay interest on payday loans of $20 million each year. 

The statute limits borrowers to one payday loan at a time; however, lenders are not required to do any research to insure that there are no other outstanding payday loans. The law also specifies that the loan may be extended no more than three times. An example of an extension: An individual borrows $500, leaving a check for $575 (to cover principal and interest) and finds he/she is unable to cover the check two weeks later. They have the option to pay the lender $75 in interest and replace the $575 check with another one dated two weeks later. 

Despite the limit on extensions, it often doesn’t work this way. There have been many cases reported of individuals paying on a loan for more than eight weeks or with multiple loans. A recent article in the Arizona Daily Star described a woman with six loans at one time. She worked in the mortgage industry and was looking for an easy way to deal with her shrinking income. Trying to keep up with the payday loans led to her getting behind on her other bills. Her credit score has gone from 742 to 500. She’s taken a second job as a bartender, and is still struggling with the payment plan she’s worked out with her lenders. While she accepts responsibility for the choices she made, she says, “. . . they make it so easy. As long as you have a pay stub, they’ll give you the money.” In her case, the payday loans didn’t help her financial crisis; they made it worse. 

In some cases lenders will negotiate payment plans, but the number of borrowers being sued by payday lenders is increasing in Pima County – from 15 per month in 2002 to 135 in May 2007. Those being sued have not always defaulted without making any payments. A situation featured on KVOA last summer described a young woman who had taken a second job and moved back in with her mother to pay off her payday loan. After paying $1,109.50 in interest and fees on her $500 loan, she stopped paying. That’s when the company sued. 

The current statue is due to expire in 2010, and there is disagreement in the legislature about how to deal with this sunset provision. Should the sunset provision be removed? Should the sunset be extended to 2018? Should there be stricter regulation of this industry? Should payday loans be outlawed completely? Rep. Marian McClure has filed papers to conduct an initiative campaign to ask voters in 2008 to ban payday loans. 

Discussion on this topic will take place Sunday, April 6, 2008 at 2:00 p.m. in the sanctuary. Rep. McClure and a representative of Arizonans for Financial Reform, a Political Action Committee representing the payday loan industry, will be the featured speakers. Charles Moore, Covenant Council Chair, will act as the moderator for what promises to be a very spirited discussion. 

For additional information, please contact our church office at 520.297.2062 or e-mail us.