The state of Arizona first legalized payday loan stores in 2000. Ever since then, the state has seen hundreds of cash advance lenders move into the state, especially near military bases. Several cities have passed laws fashioned to stem the flow of stores into their region, and the state is taking a close look at how their citizens are impacted by the high interest, short term cash loans.
A recent study conducted in the state by the Community Financial Services Association of America, a trade group that represents the industry, has put forth some statistics that many opponents within the state find hard to swallow.
The industry has long been criticized for building their stores in areas that are predominantly poor, undereducated or largely inhabited by military personnel. Opponents point out that those who are well off or educated might have no use for loans that have interest rates that can reach 1000% per year when other choices, such as bank loans, or credit card loans are readily available. Most customers of cash advance loan stores use them because they have no other short term options for obtaining cash.
The industry disagrees. The recent study suggests that customers in Arizona do not fit the conventional mold of cash advance customers. In fact, the study says that the average customer earns in the “middle income” range} and is well educated. Studies by other groups within the state suggest otherwise, noting that the study classified a salary of $25,000 as “middle income.” There are few places where a salary in that range would qualify as middle income, but there are plenty of places where such a salary would qualify as poor.
The study did indicate that almost 90% of customers were satisfied with their understanding of their lending experience. That may be true, but on the other hand, most state laws demand that the terms of the loan be disclosed to the customer in writing. Many states additionally require that the rates of interest be posted on the wall of the store, in plain view of customers. Given that, it is hard to see how anyone could possibly claim not to be notified.
But knowing that you’re borrowing cash at four hundred percent doesn’t mean that doing so is a smart thing to do. The state legislature is continuing to keep an eye on the industry, and several changes in law have been proposed on a statewide basis, particularly with regards to protecting the military from predatory lending. A excessive number of stores are likely to be located in areas that have military bases. In a time of war, taking advantage of our poorly paid members of the military does not sit well with elected officials.
The biggest issue with such lending and state law involves the question of whether or not the states are obligated to protect consumers from themselves. North Carolina recently decided that the state had exactly that obligation when they shut down the cash advance industry within the state.
