Loan Rangers

Marian McClure remembers the first time she visited the Arizona Legislature complex in Phoenix, touring both as president of The Arizona Federation of Republican Women and as a potential legislative candidate. The year was 2000.

“I went to a committee hearing and they were talking about allowing ‘payday loans’ in Arizona, and I thought, ‘They’ll never let that through – nobody would ever vote for that.’”

With her background in the credit business – Sears, Visa and MasterCard – she found the outrageous interest rates and pile-on fees of so-called payday loans unbelievable. She certainly couldn’t see any state welcoming such a business into its community. She couldn’t envision a legislature endangering its most vulnerable citizens – from the chronically poor to military families in dire straits – by exposing them to high finance schemes that baffle even the most knowledgeable.

“I was fully aware how credit should operate,” she says. “And this wasn’t the way credit should operate.”
She found it unconscionable that anyone would allow interest rates on a $500 loan to climb, over the course of a year, to the astronomical heights of 595 percent, and in some cases, 995 percent. No, those aren’t typos. We’re talking about a measly $500 loan having to be repaid as nearly $800, or even $1,000, if the consumer defaults or “rolls it over” because he or she can’t make the payments. (The “normal” interest rate, charged every two weeks, is 15 percent, but McClure says she’s found a lot of “loopholes” and “special fees” that make the interest rates zoom.)

To McClure, it begs a simple question: Why should Arizona allow someone desperate enough to write a check dated to their next payday – obviously someone in dire financial straits who needs emergency money – to be so swamped with interest rates and fees that they’re buried in a hole they can’t climb out of?
Marian McClure is now Tucson Representative McClure, and for the second year in a row, she’s tried to stop this nonsense. She’d like to outlaw payday loans altogether, and has found a powerful ally in Attorney General Terry Goddard, who says this is a blight on Arizona.

But as the year began, Representative McClure didn’t think an outright ban on the payday loan industry was an option in Arizona. Not with this Legislature. In fact, it even bothered her. “As a Republican, I never thought I’d be regulating private enterprise,” McClure says, noting it’s one of the guiding principles of her party that government should stay out of the way of business. “However, the Legislature created this problem, and it is incumbent on us to fix it.”

So, she crafted legislation she thought would “close all the loopholes.”

Her bill would cap interest rates at 56 percent. “That’s still usury,” she says, “but it’s a lot better than what we’ve got now.” It would prohibit internet loans – a new vehicle that would spread the payday loan syndrome like wildfire. And it would assure that the “special fees” can’t be used to gouge customers.
This is a woman who knows how to “work the crowd,” and she even got the payday loan industry to agree to her bill – in exchange, it would have eliminated the “sunset provision” that would have put the industry up for complete state scrutiny in the year 2010. “I got a lot for giving up the sunset provision,” she said in triumph in early March, “and there’s no way any bill will pass without giving up the sunset provision.”
Then a funny thing happened on the way to a legislative forum in late March. And let me just say this – if you’re going to tick off a powerful Republican woman, Marian McClure is not the woman to choose.
Which is why, regardless of what happens to her bill in this legislative session, she’s hell-bent on getting this industry out of Arizona. And she’s vowed to go directly to the voters in 2008 to do so.

It’s fascinating to interview a lawmaker who is in the process of seeing the light. When I first started talking with Representative McClure, neither one of us had any clue that that’s what was happening.
I first spoke with her as she was pulling off a legislative miracle – while her payday loan bill was officially dead (it couldn’t even get heard in the House), a friend in the Senate brought it back to life offering one of his bills as a “strike all” – that’s when you erase everything in the original bill and substitute something else. In this case, they’d substituted McClure’s language on restricting payday loans.

It was quite a coup, and she was quite pleased with herself.

We first talked on the phone on a Friday when she was already home in Tucson, enjoying the mountains around her house – you could tell this pleasant-voiced woman was going to have a great weekend.
And then we talked again after the Monday hearing, and that’s when I heard the tiger in her voice.
“I think I’m going to kill the payday loan bill this year,” she said right off the top, to my amazement. “I was totally shocked at 2 p.m. Monday. I thought I knew what was going on in this industry, but I found out I didn’t.”

That’s when she discovered that, unknown to her or regulators or, it seems, anybody but the payday loan industry that was keeping mum, Arizona had already licensed six companies to offer internet loans – the dreaded wildfire spread of the industry that her bill had hoped to prevent.

“They don’t even have to have a storefront to offer these loans,” she lamented. “Any computer in the world can be used to apply for one of these loans.”

And her bottom line was this: “So I’m wondering how many more secrets are out there I don’t know about. My comfort level went way down. I’m one of these silly legislators trying to do no harm. I’m trying to do what’s best for the people of Arizona. I’m in limbo right now.”

She’s too much of a lady to repeat exactly what she told industry honchos who came by her office, “but I wasn’t complimentary,” she says.

She needed the week to sort things out.

By the next Monday morning, she’d decided to let the bill go forward (it has a high probability of dying somewhere along the way) and taking a new approach.

Because she’s had it with this industry. “One of their lobbyists laughed at me when I told him I was going to sponsor an initiative to let the voters decide,” she told me after her week of musing. “He said to me, ‘Do you have any idea how many signatures you need?’” as though she were a political novice. So she hit him with her “secret weapons.”

“I said, you see those women running around here in red jackets? I used to be president of that Republican group, and we’ve got some 2,000 members. There are also women running around here in blue jackets – there are about 2,000 of them, too, and they’re Democrats. So I’ve got 4,000 signature collectors, and I haven’t even called AARP or ACORN yet. He stopped laughing.”

She’s vowed to use her own money, if needed, to get petitions printed, and says “whatever it takes,” she’s going to ask voters to approve a plan to limit interest rates to only 36 percent. “That will effectively get rid of them, because they’ll tell you they can’t operate at that level,” she says with a certain amount of glee. Although the industry insists it fits a need in Arizona, and that those who pay the loans back in time are just fine with the fees, others will be astonished at what too often happens to poor people who need a few hundred dollars in an emergency.

Terry Goddard calls the payday loan industry a “vicious business.” He notes we got them in the first place in the year 2000 because Arizona repealed its usury rules to lure credit card companies to the state. “That move created thousands of jobs, but it made Arizona consumers victims of these extraordinary interest rates,” he says.

Here’s how it works. You can borrow up to $500 from a payday loan center, writing the company a check post-dated to your next payday. The check is for the principal amount, as well as the interest of 15 percent, so the consumer writes a check for $575. If you can’t repay the full amount in two weeks, you cough up another $86.25 – 15 percent of your $575 check. So, you’re now paying off the loan, plus interest on your interest. At that point, the loan is “rolled over” and you now owe $661.25. It happens all over again in two weeks if you can’t repay everything.

And that’s for just one loan. But records show the average borrower takes out as many as eight payday loans a year – these repeat borrowers make up 91 percent of the industry’s business. Then there are the really dirty tricks. Arizona law provides that if you write a bad check, the recipient can get a JP order to double the face value of the check. One judge was so disgusted with the number of payday loan companies coming to his court to get double face-value judgments that he personally refused to hear them.

“I’ve heard so many stories where people have used a payday loan as an emergency, only for it to become a ball and chain,” Goddard says. “I actually have a hard time wondering what is the social utility of $500 loans? If you have a problem with a water bill or an electric bill or even the mortgage, there are programs to help people who have had a setback.”

If he had his way, he’d follow the lead of California and Georgia, which have banned payday loans completely.

But McClure says she’s heard from people who say the loans are handy in emergencies – of course, the people she’s spoken to say they’ve never had any problem, because they’ve paid the loans back promptly.
The business is so popular, that in just seven years, Arizona has seen 727 payday loan storefronts open. Studies show that in Arizona “predatory payday lending cost families $139 million in 2005,” according to a Tucson Citizen editorial titled Pox on Payday Lenders. (Nationwide, studies show predatory lending costs American families $4.2 billion a year in excessive fees.)

Goddard says national payday lenders have told him, “We don’t need the permissive climate that exists in Arizona – we’re ready for the restrictions we have in other states.”

And Goddard says he won’t stop fighting to get payday loans under control. “I’m outraged,” he says. “It’s totally ridiculous that Arizona consumers have none of the protections other states have. I’m tired that we allow people to be put in a hole they can never crawl out of.”

McClure says she won’t stop fighting, either. “If I could make a perfect world, we wouldn’t need payday loans,” she says. “But all I can do is try and get the people a fighting chance.”

She’s finding she has a better chance of doing that at the ballot box than in the halls of the Legislature. I wish her luck.