Proposition 200 - Payday Loan Reform Act

In Arizona, proposition 200, named "Payday Loan Reform Act", will be on the ballot this November. I've received plenty of mail, and heard lots of commercials in favor of the initiative, but until I read the initiative myself, and the official arguments for and against, I had no idea what was really going on.

The proponents of the proposition say that this will make payday loans better for Arizonans, by lowering fees, improving repayment options, and putting unscrupulous lenders out of business. It will take away options like rolling over balances, taking out multiple loans at the same time, and borrowing over the internet. As I was reading this, it looked like this was just another attempt to take away freedoms from businesses - after all, people are aware of how bad the rates are, but they get the loans anyway, because they need them. And the rates are ridiculous because the default rate is so high. The whole purpose of these things is for emergency money, and even with the obscenely high rates and fees, the services are not predatory or illegal. So I was all set to vote "No" on this one.

Then I started reading more about this. The opponents of the amendment don't make any of the points I do - they are actually very much against payday loans in general. It turns out that the whole system of payday loans will die in July 2010, unless something is done about it. So if this amendment passes, then all of these stores will close down. Payday lenders just wouldn't be able to be profitable with the kind of regulation that happens on normal loans, so they would just go away, and people who have emergency repairs or other unexpected needs, but no credit cards, would then bounce checks or accumulate late fees, doing further damage to their already bad financial situations.

Kind of a backwards scenario. The proponents argue that the amendment is all about making the industry more fair to the consumer, when in fact it's a desperate measure just to stay alive. While I don't like the tactics, I am in favor of the outcome. People should have the right to borrow money however they can, and if that means 400% payday loans, then that's the way it is, and if they can clean up a little bit of the industry at the same time, that's fine.

Just to be clear, I'm not a fan of payday loans - they are misused, overused, and many of the people who use them regret it - this is because they don't know how bad they are, or they know and don't have any other choice. These loans should be a last resort only, and the customers should be very well informed of what they're getting themselves into. The effort currently going into shutting these places down would be better spent educating consumers.

Tags: politics

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