Payday Loans' True Cost is Vital Information
It was disappointing that a judge on Tuesday rejected an effort by payday-loan opponents to inject a dose of reality in the description for Proposition 200 that will appear in the General Election Voter Pamphlet. The description voters will see doesn't adequately describe what the initiative would change and doesn't convey to consumers the true cost of payday loans. A group called Arizonans for Responsible Lending, No on 200 tried to persuade Secretary of State Jan Brewer to change the description of Proposition 200 to say that it would allow payday lenders to charge an annual interest rate of 391 percent on two-week loans.
Also, the group wanted voters to know that approving Proposition 200 would give payday lenders an exception to the state's 36 percent cap on consumer loans. Brewer, however, refused to alter the description of Proposition 200, saying the protest over the language came too late. Her refusal prompted payday-loan opponents to take the issue to court. While Brewer was rejecting the language-change request from Arizonans for Responsible Lending, she filed suit against Attorney General Terry Goddard over the wording of an initiative regarding gay marriages. She ultimately agreed to change the description of the gay-marriage initiative, Proposition 102, on Tuesday.
It's baffling that she was able to change the description for one initiative this week while she refused last week to consider altering the language on another measure. "We are disappointed the secretary of state will not be required to give voters the crucial piece of information they will need to make an informed choice," state Sen. Debbie McCune Davis, D-Phoenix, who is leading the campaign to get rid of payday lenders in Arizona, said in a press release Wednesday. The most important reason voters should reject Prop 200 is because it would do away with a provision in state law that would outlaw payday lending in 2010. That is the initiative's overriding objective, and the licensing issue is clearly reflected in the measure's description.
However, we believe the language on interest rates should also have been included in the description of Proposition 200 because the cost of payday loans is exactly why they are so pernicious. Under Prop 200, formally known as the Payday Loan Reform Act, the cost of such a loan would drop slightly to 15 percent of the amount borrowed, which can be $50 to $500. Payday lenders opposed the language change because they say they don't charge interest, only a fee. However, if expressed as an annual interest rate, 15 percent over two weeks is the equivalent of charging 391 percent over an entire year. It is nothing short of legalized loan sharking. When it comes to payday loans, many consumers don't realize how expensive the fees are until they have trouble paying back the loans.
That's what happened to Jared O'Bryan, a 28-year-old Tucsonan who works at a call center. O'Bryan told us Wednesday he is juggling four payday loans and owes slightly more than $1,700. He said his trouble started a couple of months ago when he took out a $400 loan to make his rent payment. He then took out more loans to make another rent payment, pay other bills and to pay fees and renew the first loan.
It's the payday-loan treadmill that we've heard of often. People can't keep up with the high fees payday lenders charge and end up worse off financially than when they started. "I want to pay off these loans, but the (fees) are killing me," O'Bryan said. "I don't know how I'm going to make it, to tell you the truth. "I'm just living check to check, and there's no light at the end of the tunnel." Try telling people like O'Bryan that knowing about interest rates isn't important. It's too bad a judge didn't see it the same way.
Source: http://www.azstarnet.com/allheadlines/254819