No more 400% loans in Arizona

By Aaron Smith, CNNMoney.com staff writer


NEW YORK (CNNMoney.com) -- Payday loan lender Advance America is abandoning Arizona now that the state has become the 17th state to get rid of these firms, which legislators see as predatory.

Payday loans are small, 14-day cash advance loans with hefty interest rates. In Arizona, lenders of these petty loans were permitted to charge interest rates of more than 36%.

But on June 30, the legislature allowed the law to expire, putting the firms out of business unless they are willing to reduce their annual interest rates to 36% or lower.

Advance America (AEA) said it is shuttering 47 loan centers and could lay off as many as 100 employees because it cannot afford to stay open with a 36% interest rate, said company spokesman Jamie Fulmer.

"This is a tough time to be losing your job [and] the government took a hand in losing your job," Fulmer said, noting that payday loans are "the simplest, most transparent, most fully disclosed product in the marketplace."

But Arizona Attorney Terry Goddard applauded their exit.

"Advance America made millions in Arizona off a business model that preyed on vulnerable borrowers and charged them unconscionable interest rates and fees," Goddard said in a release. "They could have amended their business practices like other companies and charge lawful rates, but they chose to fold their tent here."

Fulmer said that in Arizona his company typically charged $17 per $100 worth of borrowed money in a 14-day loan. While this exceeds a 400% annual interest rate, he said that would only apply to a borrower who carried over the loan over a full year.

Plus, he added, his company was providing a needed service during hard times.

"In Arizona they did nothing to address the consumer's need for the product," he said. "All you do is take it away from them."

But many more states are following quickly behind Arizona. Montana, Mississippi and Colorado, for example, are considering changes to their pay-day lending laws.

"There are a lot of states that are looking at payday abuses, because a lot of people realize that it's a very abusive product and they don't want their citizens to pay 400% interest," said Susan Lupton, senior policy associate for The Center for Responsible Lending, a non-profit research association.

Plus, the default rate is up to 50% on these type of loans within the first 12 months, added Uriah King, vice president of state policy for The Center for Responsible Lending.

Colorado legislators just passed a law that will go into effect in August, which will cut payday loan interest rates by two-thirds and extend the minimum loan term to six months, said King.

He said the next state where payday loans face an uncertain future is Montana, where voters take up a ballot initiative in November to decide whether they want to cap interest rates. Also, Mississippi faces an expiration date in 2011 that's similar to the one that just occurred in Arizona.

The South Carolina-based Advance America continues to operate in 32 states, but its future in some of those states is uncertain. "It's our strong desire to work with the legislatures in Mississippi and Montana to address concerns about this product," Fulmer said.

Also, the Wall Street reform bill that is currently being considered by the Senate would give regulators the authority to oversee payday lenders.  To top of page

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