PHOENIX -- The defeat of Proposition 200 at the polls has left the payday loan industry with a two-word question: Now what?

Doing nothing is not really an option, as it would put the lenders out of business in less than two years.

And that timing makes going back to the ballot unrealistic, as any relief would come too late.

Assuming the lenders want to keep operating in Arizona, that would seem to leave only one course: Ask state lawmakers to amend the law -- the very thing that voters refused to do. But Lee Miller, chief lobbyist for the Arizona Community Financial Services Association, said that is "to be decided.''

At the heart of the battle is a special law that industry lobbyists obtained in 2000 which exempts them from the state's usury laws. Those laws cap interest at no more than 36 percent a year.

The 2000 statute creates an exception for fees charged in "deferred presentment transactions'' of up to $500.

In essence, someone who needs money weeks writes out a check for that amount plus the fee which can be up to $17.85 per $100 valued. The company agrees not to cash the check for up to two weeks.

That computes out to an annual percentage interest of more than 450 percent.

But when lawmakers enacted that 2000 statute they wanted to see how the new payday loans would work. So they included a "sunset'' clause: The law self-destructs on July 1, 2010 unless renewed.

Efforts by Miller to convince lawmakers to remove the sunset failed, even when the industry offered some concessions like preventing "rollovers.'' That left the ballot.

Here, too, the lenders put in provisions they advertised as "reforming'' the industry, including a ban on rollovers and a provision allowing borrowers who cannot make the check good at the end of two weeks to get an interest-free extension. It also would have lowered the maximum fee to $15 per $100.

That, however, proved no more acceptable, as foes noted it still translates out to 391 percent. In the end, the initiative was rejected by a 3-2 margin despite the industry pouring in more than $14 million.

Miller said some of the reason for that defeat may have nothing to do with payday loans themselves.

"It turned out to be an inauspicious time to be advocating on behalf of lenders,'' he said, what with all the publicity about government bailout of banks.

Miller said that any decision about what to do in Arizona may depend on what happens in Washington.

"We have a new president, a new Congress, which is likely to take a look at how lenders, in general, do business with consumers,'' he said.

Congress has already made making payday loans to military personnel illegal by capping interest they can be charged at 36 percent. And Barack Obama, while campaigning earlier this year, promised to impose a nationwide identical cap on interest charge to all borrowers.

The prospects for changing the law in Arizona before the deadline are mixed at best.

On one hand, the key Republican lawmaker who fought to rid the state of payday loans is gone. Rep. Marian McClure, R-Tucson, chose instead to run -- unsuccessfully -- for the Arizona Corporation Commission.

But Sen. Debbie McCune Davis, D-Phoenix, the other key player in the issue remains. And she said she is committed to ensuring that payday lending goes away as scheduled.

"The days of 400 percent interest rates are numbered,'' she said. "The people demand responsible lending laws.''

And the organization formed to oppose Proposition 200 is remaining intact to battle any effort by lenders to remove the sunset.

"This predatory industry will pull out all the stops to try to circumvent the will of voters and protect their multi-billion dollar lending scheme in Arizona,'' said Kelly Griffith of Arizonans for Responsible Lending.

With McClure gone, the Republican-controlled Legislature may be more receptive to allowing payday lending to continue in some form. But that still leaves one very big roadblock: Gov. Janet Napolitano.

She opposed Proposition 200.

Gubernatorial press aide Jeanine L'Ecuyer said Napolitano will not take a public stance now on what she would do if a bill to keep the industry alive reaches her desk. "She won't speculate on legislation that may or may not exist,'' L'Ecuyer said.

But L'Ecuyer said the governor considers payday lending an "unfair practice'' and was no more pleased with the proffered 391 percent interest rate cap than she was with the current higher rate.

All that, however, presumes that Napolitano remains governor and does not head off to become part of the Obama administration, a move that would elevate Republican Jan Brewer to the state's chief executive.

There is, however, another backstop if an extension of the industry's life were to pass the Legislature and be signed by the governor.

Arizona law allows any individual or group that objects to a new state statute to circulate petitions to refer the matter to the ballot. If they get enough signatures within 90 days -- the likely target, which is determined every two years, should be about 105,000 -- the law is placed on "hold'' and does not take effect until voters decide its fate at the next regular election.

That would not be until November, 2010, five months after the current authorization expires.