Today -- June 30th -- is the day that the payday lenders are supposed to close up shop in Arizona. But rather than celebrate, consumer advocates are braced for what might be coming next. They've seen what's happened in North Carolina, they see what's going on in Ohio.
And maybe they follow the Payday Pundit, the alter-ego of Steven Schlein, the man the $40-billion-a-year payday industry pays handsomely to put lipstick on the pig. Last week, the Pundit quoted an article in The Wall Street Journal noting that there were nearly 600 stores in Arizona making cash advances against people's next paychecks but changes in Arizona law "could effectively put them out of business" come July 1.
"Take heart," Schlein wrote in his role as the Pundit. "The industry has proven pretty resilient."
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The payday lending industry didn't exist at the start of the 1990s but by 2001 there were more than 10,000 of these storefront bankers lending money $200 or $400 at a time to those living on the economic fringes. North Carolina was the first state to fight back against these lenders permitted by local law to charge fees that worked out to an annual interest rate of around 450 percent.
The state legislature in North Carolina had been smart. They were willing to invite the payday lenders into the state but the law they wrote would expire unless it was renewed within four years. The payday lenders had sold their product as a once-in-a-blue-moon emergency product but in reality people were owing money to one of the 1,000 payday stores that had opened around the state for months at a time.
It was in mid-2001 that North Carolina tried ending its experimentation with payday lending yet it wasn't until March of 2006 that the last of the big payday chains actually closed up shop.
The payday lenders made the right economic choice by continuing to operate in the state, even if also a morally dubious one. North Carolina meant about $20 million in profits for the payday lenders and if the last three big chains standing - Check Into Cash, Check 'n Go, and First American Cash Advance - didn't quite collectively book that much money each year, the trio was adding millions annually to its coffers.
And for operating in defiance of the law for nearly 5 years? The three paid a collective fine of $700,000.
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To begin with the punch line. "Like mosquitoes adapting to a new bug spray," wrote Thomas Suddes, a columnist for the Cleveland Plain Dealer. Ohio not once but twice tried pulling the plug on its payday lenders but they're still making payday loans - even if they don't use the term "payday" when describing them.
The payday lenders first came to Ohio at the start of 1996. It was in 2007 that elected officials in Ohio started holding hearings where anybody who had something to say about the business - whether a store operator, a customer, a former employee, or just Joe or Jo Citizen - could be heard.
The Attorney General held public forums around the state. In the Ohio House of Representatives, the Republican chairman of the Financial Institutions Committee held several hearings, including one that lasted seven hours. The result? In the spring of 2008, the House voted overwhelmingly in favor of imposing a 28 percent rate cap on the payday lenders and the Senate followed suit shortly thereafter.
And then the day after Ohio Governor Ted Strickland's signature made the bill a law, the payday lenders filed paperwork to put a referendum on the ballot that would reverse it.
That gambit only proved that Ohioans were anything but ambivalent about payday loans. In November 2008, by nearly a two-to-one margin, voters in Ohio rejected the payday industry's appeal to let them continue making loans at rates that worked out to 391 percent per year.
Yet Ohio is pretty much a replay of North Carolina. The smaller players have tended to close shop but the chains are using one of a couple of workarounds. A favorite if for no other reason than its diabolical creativity: Charge only 28 percent interest on loans of a couple of hundred dollars - except now borrowers are paying a $15 application fee and also $10 for a credit check.
And some of the more aggressive lenders are paying their customers with a check so they can charge them an extra fee to cash it.
How else could they continue making 400 percent or so on their money?
The Ohio House has passed a bill that would curb the fees lenders can charge its customers but the Senate has yet to take any action.
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Payday came to Arizona in 2000. But like North Carolina, the Arizona legislature added a sunset provision. The payday enabling legislation expired after 10 years, i.e., now.
In 2008, the payday lenders bankrolled an initiative they dubbed the "Payday Loan Reform Act." They spent $14.8 million trying to convince Arizonans to vote for a measure that would allow them to keep operating in the state, according to David Higuera of Arizonans for Responsible Lending. (Interestingly, the industry's ad campaign in support of their referendum called on voters to "crack down on payday lenders," as if theirs was an initiative supported by payday's foes.)
But despite spending so much money, the payday lenders lost that vote, just as they failed at subsequent attempts to convince the legislature to allow them to continue operating in the state.
The jig is up today - June 30th. But there are other alternatives for the innovative fringe lender in Arizona, like loans against a person's car. A lender can charge about 200 percent on a car title loan, not 400 percent (but then they hold a pretty valuable piece of collateral, the title on a person's car), and already operators representing about half the payday stores in the state have applied for a license to make these loans, said Jean Ann Fox, a long-time staffer for the Consumer Federation of America who happens to live in Arizona.
And then there's the lender offering prepaid cards that include an overdraft feature that allows people to borrow against money they don't yet have -- at rates equal to a payday loan.
Arizona's Attorney General has issued a stern warning to any payday lender thinking of continuing to make payday loans after today. And Arizona, unlike Ohio, has limits on the fees a lender can add to the cost of a loan. Fox, who has been monitoring the payday industry since the mid-1990s, is confident that Arizona won't be as bad as North Carolina or Ohio even as she agrees that the payday lenders are a crafty and resilient bunch.