Payday Lending Becomes Illegal at End of June
Phoenix, AZ – Payday loans operated for a decade under an exception to state
laws which cap interest at 36 percent a year. The system involves
a lender agreeing not to cash someone's bad check for up to two
weeks for fees that, extrapolated out, top 400 percent. That
exemption goes away on June 30 and both voters and lawmakers
refused to extend it. Goddard, who is running for governor, said
he has no evidence anyone intends to ignore the law, at least not
outright. But he said experiences in other states suggests they
might try something less straightforward. One example involves
auto title loans, where a lender advances money while holding a
vehicle's title, at legal interest rates of 17 percent a month.
Those remain an option -- if done legally.
(And so we believe a lot of people already are telling their
customers to shift to auto title loans, even if they don't have a
car. And that's what I mean by sham auto title loans. They're
being rolled into a series of loans which in fact are
Goddard said there are other schemes, including providing prepaid
debit cards, but with fees so high they violate state usury laws.
But Goddard conceded that what actually is covered by those laws
is not crystal clear and there may be other legal ways to lend
money at more than 36 percent. For Arizona Public Radio this is