'Payday loans' trying to make a comeback in Arizona

PHOENIX - Over the objection of Democrats, House Republicans voted Tuesday to allow lenders to offer a new kind of high-interest loan in Arizona.

SB 1316 would craft an exception to existing laws that generally limit interest rates to no more than 36 percent per year. This would allow lenders to charge up to 15 percent a month - 17 percent if there's no collateral - on loans between $500 and $2,500 for terms between 45 days and two years.

Proponents said the legislation fills a need for those who do not have access to more traditional and lower-cost borrowing and need the money quickly.

"If we had alternatives, we probably wouldn't be having this conversation," said Rep. Mark Finchem, R-Oro Valley. And he said the faith-based organizations opposed to this legislation should offer some lower-cost alternatives.

And Rep. J.D. Mesnard, R-Chandler, who is championing the legislation, said banks won't do these kinds of loans to those with bad or no credit.

"They're not going to loan at a rate that won't make sense to them financially," he said.

But Rep. Debbie McCune Davis, D-Phoenix, pointed out the allowable charges mean someone who borrows $2,500 for the full two-year period would end up having to pay back more than $10,000.

"Who here is going to say that solving a $2,500 by paying $10,000 helps anybody?" she said. "These arguments are absolutely absurd."

The push comes nearly a decade after Arizonans voted by a 3-2 margin to kill off "payday loans," which carried an interest rate of more than 300 percent.

Rep. J.D. Mesnard, R-Phoenix, said these are an entirely different loan product, with interest rates in the 200 percent range. He also said there are protections built in to preclude people from getting trapped in a cycle of debt by taking multiple high-interest loans.

Anyway, he said, these loans are better than the alternative now available to those in need.

"There's nowhere for folks to go, so they go to loan sharks who will maybe chop off their fingers if they don't pay back a loan," Mesnard said.

McCune Davis said she sees little difference between that option and what this legislation proposes.

"These are the loan sharks," she said. "And what you're doing with this bill is to legalize their practices."

The measure could have a difficult future even if it gets final House approval. Last month a Senate panel voted 3-2 to kill virtually identical legislation, with Sen. Kimberly Yee, R-Phoenix, siding with foes.