Payday Loan Times

The Deseret Morning News reports that Utah payday loan agencies dodged a legislative bullet Tuesday — one that would have limited them to charging just 8 percent annual interest on their loans instead of the triple-digit APRs that they currently assess.

Republican representative Dave Hogue of Riverton said he had to scrap the proposed interest rate cap in an effort to salvage other reforms he is seeking, or else all of his efforts would have been nixed altogether.

"I don't think that (interest rate cap) would ever pass this Legislature. And I don't think that would be acceptable to the financial industry because it would be a beginning of going back to usury caps that the Legislature erased in the 1980s," Hogue said.

The Business and Labor Committee of the Utah State Legislature passed Hogue's reform bill, 9-2, after he dropped the interest provision. The legislation includes restrictions such as limiting the penalties that payday lenders may collect on bounced checks that customers had used to secure payday loans.

The financial industry has long lobbied against imposing caps on payday loan interest rates, even in an industry where 521 percent is the median APR. The industry argued that capping payday loans could lead to caps on other loans from mortgages to credit cards. It could also result in large lenders leaving Utah and taking jobs with them, advocates say.

In Utah, a quick payday advance charges a median of $20 per $100 loan for two-week loans, made in advance of the borrower's next paycheck. Hogue's bill would have allowed unlimited interest on the initial loan, but only 8 percent for the extension period if the recipient could not pay it off.

Credit counselors and consumer advocacy groups say that payday loans are designed to trap desperate or unsophisticated people, but lenders say they offer emergency help to people with no credit, and their loans are cheaper than fees levied for bounced checks or for getting disconnected utilities turned back on.

Kip Cashmore, vice president of the Utah Consumer Lenders Association, believes that Hogue's proposed restrictions are not needed because most consumers are overwhelmingly happy with payday loans.

"Out of the hundreds of thousands of transactions that the companies did last year, the (state) registered 22 complaints. That's phenomenal," he said.

Many online payday loan companies instead back a bill by Sen. Ed Mayne of West Valley, which would allow the state to fine payday lenders for violations of state law. The only penalty currently allowed is to shut down a lender, a scenario that has happened only once. But some payday supporters oppose both pieces of legislation.

James Evans, Chairman of the Salt Lake County Republican Party and a payday lender himself, has been lobbying hard against any changes to state law, claiming that inflamed passions are the only motivating factors.

"I am fundamentally opposed to any bills this session because they are based on a premise that there's something wrong with the industry. And that premise is basically based on the articles [the Morning News] wrote," Evans said, citing journalistic prejudice against the industry.

The Morning News series on payday lenders found that Utah has more payday loan stores than 7-Elevens, McDonald's, Burger Kings and Subway stores — combined. Utah has some of the friendliest payday loan industry laws in the entire country, which has attracted many of the biggest national online payday lenders here.

Utah payday loan companies face relatively few regulations in the immediate future, and skeptics worry that there are few ways of policing the rules already in place. The newspaper also found that payday loan stores are concentrated in areas that near the large Hill Air Force Base, much like a similar charge levied against California payday loan companies of late.