By Frank Jones on December 30, 2011
.jpg.aspx) Back in 2010, Arizona decided to do away with payday loans. They were the 17th state to do so at the time. Payday lenders tend to charge fees rather than interest and these fees add up very quickly. Often this leads to a cycle of constant borrowing simply to repay the loans from the previous payday lender. A better alternative is to develop, and stick to, a budget combined with some lifestyle changes to help reduce and eliminate debt.
Interest
If converted to an APR like you would see on other loans, payday loans in Arizona would tally more than 400% interest. Payday loans of this kind are never a good idea, and they are often a fast track to deeper financial difficulties. However, Arizona did not outlaw payday loans entirely, they simply made it illegal to charge such high fees. Any lenders who are willing to keep their interest rates below the 36% threshold now mandated in the law is welcome to continue operating in Arizona.
Regulation
The new regulation will simply no longer allow payday lenders to charge interest rates over 36%. The old law allowed this practice, “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.” This does not force the payday lenders to close their businesses, but simply to remodel the business around a more reasonable interest rate which would allow the recipient of the loan to eventually repay their debt.
Closing
As they close their doors, some lenders are trying to frame the issue in light of jobs lost by pointing out that “this is a tough time to be losing your job [and] the government took a hand in losing your job.” However, this issue is about charging fair interest rates. Those same jobs could be saved if the companies providing these payday loans were willing to do so under the new law that allows for interest rates not above 36%.
In a July 2010 press release, Arizona Attorney Terry Goddard said, “Advance America made millions in Arizona off of a business model that preyed on vulnerable borrowers and charged them unconscionable interest rates and fees.” Goddard went on to say, “They could have amended their business practices like other companies and charged lawful rates, but they chose to fold their tent here. That’s just what Arizona voters hoped would happen when they rejected this industry at the polls.”
Although, several other states were lining up behind Arizona it seems they have decided not to eliminate payday loans. “Montana, Mississippi and Colorado, for example, [were] considering changes to their pay-day lending laws.” According to Wikipedia, there are still only 14 states which have eliminated payday lending.
Moving Forward
Instead of considering short-term high-interest payday loans, why not confront the problem at its source. There are creative ways to lower credit card bills, develop a debt reduction plan, or make some lifestyle changes that can save you money over the long haul. Additionally, you could create a budget and solicit the help of a reputable debt negotiation service.
|