A bill that would put an end to a nearly five-year ban on payday lending is languishing in the Arizona Senate after narrowly slipping through the House with a 31-29 vote.
Still, about two dozen legislators, faith leaders, and community activists gathered in a gravel parking lot sandwiched between two auto-title loan offices Friday to protest the proposal.
"I won't believe the bill is dead until they adjourn the session," said Kathy Jorgensen, a member of the board of directors at the Society of St. Vincent de Paul in Phoenix, who attended the rally. "It's like zombie land up there at the legislature. You think you've killed something and it comes back."
House Bill 2611 would authorize financial institutions to offer $500 to $3,000 "flex loans" to Arizona consumers with damaged credit for unexpected car repairs, medical bills, or other expenses, said state Representative J.D. Mesnard (R-Chandler), who introduced the measure. Currently, people with poor credit scores must have collateral, such as a car or valuables that can be pawned, in order to get a small loan.
"If someone doesn't have access to credit when they're in a bind, they are screwed," Mesnard told New Times, adding, "This is not a hypothetical situation. This is something that's happening every day."
Critics argue, however, that Mesnard's proposed flex loans are actually "debt traps."
"I'd like to see us get to a point where we stop using the terms payday loans and title loans and just call it like it is," Jorgensen said. "These are predatory loans."
Arizona caps interest rates on loans at 36 percent -- and Mesnard's flex loans would abide by that rule. However, the bill allows for "customary" fees of up to 0.5 percent daily on unpaid balances. When these fees are taken into account, the interest rate skyrockets to 216 percent annually, said Kelly Griffith, executive director of the Southwest Center for Economic Integrity, a nonprofit based in Tuscon.
Under the proposal, borrowers who take out a $3,000 loan would pay $4,900 in interest during the first year and still owe more than half the principal, Griffith said.
Nationwide, nearly 70 percent of borrowers use payday loans for everyday living expenses, such as utilities, rent, and food, according to a recent report from the Pew Charitable Trusts. Just 16 percent take out loans for emergency expenses. A Southwest Center for Economic Integrity survey conducted in Pima County echoed those numbers.
"If you can't meet your basic living expenses and you take out a payday loan to meet them, what's going to happen the next month?" Griffith said. "Things spiral out of control really fast."
Mesnard said he understands the concern that "some people might make bad decisions," but maintains that it's "irresponsible" to take the option away from everyone.
"I hope people will take advantage of the best offer they can get, whether that's borrowing money from family, leaning on a charity, or taking out a loan," he said.
Mesnard failed to line up enough support to push the bill through the Senate Finance Committee Wednesday, so he yanked the bill from the agenda ahead of the vote. Now, he's taking a step back to "assess support" and address concerns before reading the bill in committee next week, he said.
Protesters Friday, including state representatives Debbie McCune Davis, Reginald Bolding, and Ken Clark, all democrats, didn't seem keen on compromise.
When they set up in the parking lot around 2 p.m., hefting signs printed with slogans like "Save the Working Families" and "No to Loan Sharks," the employees at the auto-title loan office "just closed up shop and left," McCune Davis said.
Fixing her gaze on the company's big green and white sign, she drew a metaphor between the protest and a broader battle to chase high-interest payday lenders out of Arizona.
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"We want them to go away and stay away," she said.
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