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The Daily Wildcat

The Daily Wildcat


    Editorial: Prop 200 won’t protect consumers

    In less than a month, Arizona voters will be asked to decide the fate of an entire industry. If Proposition 200 fails, more than 100 businesses may well close in 2010.

    This might sound like a no-brainer. But the businesses in question are among the most universally despised in our society: payday lending stores.

    In the Middle Ages, usury was considered the lowest profession there was. There’s an echo of this ancient sentiment in the way many people regard payday lenders, who give consumers cash in exchange for a postdated check with a high interest fee tacked on.

    The proposition’s advocates argue that the initiative -ÿwritten and put on the ballot by the payday loan industry itself -ÿwould save the industry from collapsing and protect consumers from some of its worst excesses.

    Since all of Arizona’s payday lenders’ licenses are set to collectively expire July 1, 2010, defeat of Proposition 200 would almost certainly spell the end for the industry.

    The proposition’s opponents contend that “”reformed”” payday lenders are still payday lenders. They accuse the industry of exploiting the poor and trapping their clients in an endless cycle of debt.

    There’s a lot of truth to those attacks. Payday loan stores are overwhelmingly located in the poorest neighborhoods. We all know someone who opted for a payday loan out of desperation and then failed to resist the temptation to borrow again or ask for an extension. After all, anyone in sufficient financial trouble to seek out payday loans isn’t likely to get out of that trouble after one loan.

    Most damningly, if they were held to the same standards as other lenders, payday loan stores would be illegal. Interest rates for all other loans in the state top out at 36 percent. In 2000, the Arizona legislature exempted short-term lenders from that rule, letting them charge up to 459 percent, according to the Tucson Citizen.

    When lawmakers did that, they practically invented a new industry. According to the Arizona Republic, the state went from having two dozen local payday loan company headquarters and no branches in 2000 to 96 headquarters and 715 branches as of May this year.

    Apologists for payday lenders insist that without such high interest rates, the stores wouldn’t be able to stay open. That is precisely the point. Payday lenders exist on the condition that people won’t be able to pay back the loans right away. If all borrowers became responsible, payday loan stores would have much less reason to exist.

    Advocates of Proposition 200 argue that getting rid of payday lenders won’t eliminate the poor; it’ll just rob them of a last-ditch option that might well mean the difference between paying a bill and going without water or electricity for a month.

    In the current economic climate, advocates argue, it’s reckless to take away any options for people who are struggling to make ends meet, particularly if it means shutting down more than 100 stores.

    These arguments miss the point. Before 2000, Arizonans who couldn’t pay their bills didn’t have the option of going to payday lenders. Instead, they borrowed from relatives or friends, asked for extensions or simply tried to better manage their finances.

    The argument that closing payday loan stores would be a blow to the economy is equally spurious. It might help the economy if we legalized the sale of heroin and let merchants hawk it on the street, but that doesn’t mean it would make our lives any better. An industry that thrives on keeping consumers poor does not help the economy.

    Payday lenders encourage excessive, reckless borrowing habits. They invite consumers to take the easy way out of financial obligations, then mire them in a permanent state of debt.

    They hold out what appears to be a helping hand to struggling people, then bind them fast with a chain of multiplying debts. They’re bad for the economy and bad for consumers.

    By legalizing them, the Arizona legislature made a serious mistake. It’s time for the voters of Arizona to step in and correct that mistake, and they can do that by voting against Proposition 200.

    Editorials are determined by the Daily Wildcat opinions board and written by one of its members. They are Andi Berlin, Justyn Dillingham, Lauren LePage, Lance Madden and Nick Seibel.

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