Neither Borrow Nor Lender Be: The Future of Payday Lending in Arizona

This Note examines Arizona’s ten-year experiment with authorized payday lending and sets it in the framework of the continuing national policy debate about this high-risk, high-cost consumer financial product. Arizona was one of more than forty states that regulated payday lending by statute, in the process sanctioning interest rates far in excess of the state’s existing consumer interest rate cap. When Arizona’s deferred presentment statute sunset on June 30, 2010, payday loans lost their privileged status and fell under the purview of Arizona’s 36% consumer interest rate cap. The question remained as to how the payday loan industry would respond to this changed regulatory climate. This Note looks at the payday loan industry; it discusses payday lending as it existed in Arizona and looks at the consequences of its loss of authorization there. The Note examines the major arguments both for and against payday lending and considers regulatory schemes that have been tried, with varying success, in other states. It then suggests solutions both for regulation and for improving the cost and availability of small-dollar, short-term credit. Ultimately, the Note argues a state interest rate cap is not sufficient to protect Arizona consumers from the abuses of the payday loan industry; Arizona must first close the statutory loopholes that allow payday lenders to circumvent rate caps. The solution to the payday-lending dilemma will require a multi-pronged approach involving legislation, innovation in lending products, and aggressive enforcement of usury laws.