Monday, February 5, 2007

This was supposed to be the year that consumer advocates were going to convince the Legislature to pass sweeping reforms for the Utah payday loan industry.

There was talk of a number of measures to protect consumers from abuses in an industry that provides short-term loans at an annual percentage rate of 400 percent - even the ultimate step of capping interest rates payday loan operators could charge Utah borrowers.

But it isn’t working that way. Easy payday loan industry regulation, instead of taking center stage, has been pushed aside by a number of higher-profile issues - such as abortion and school vouchers.

And while a well-organized and well-funded payday industry lobby is highly visible in legislative committee hearings, few, if any, payday loan customers are backing consumer advocates who are demanding reform by marching to the Capitol and detailing egregious abuses

So several weeks into the session, interest rate caps on payday advances has yet to be broached - and probably won’t be this year. Other proposals have yet to progress very far. And those pushing for payday industry reform aren’t all that crazy about the one measure that has made it all the way to Gov. Jon Huntsman Jr.’s desk- Senate Bill 16.

The bill focuses on giving the Utah Department of Financial Institutions the ability to assess fines on payday loan operators who violate state law. Sen. Ed Mayne, D-West Valley City, the bill was endorsed by the department, which regulates the payday advance industry.

But the fact that the industry backed the bill illustrates just how weak it really is, said Linda Hilton of the Crossroads Urban Center, an advocacy group for low-income people that is pushing for reform.

“Senate Bill 16 is a nice thought, but it does nothing in terms of consumer protection,” said Hilton, who also represents the Coalition of Religious Communities, a Utah organization representing a variety of different faiths.

Different payday loan view: Cort Walker doesn’t agree. Walker, operations director for fast cash advance provider Check City and spokesman for Utah’s payday industry trade group, considers SB16 an important piece of legislation for Utah consumers.

The bill clarifies a number of measures affecting lenders. But most importantly, the bill gives the Department of Financial Institutions the power to fine lenders who fail to register with the state or who violate state law, said deputy commissioner Paul Allred.

He thinks the fines are an important step in ensuring that providers of bad credit payday loans adhere to state law.

Hilton said she supports the idea of fines, but thinks the legislation is vague enough - and provides enough discretion to the department - that she worries few companies ultimately will ever face fines. She says the public might never know how effective the measure is because the bill does not require the department to publicly disclose any information about violations of state law or of any fines assessed on individual companies.

Laura Polacheck, AARP Utah’s associate director, also is underwhelmed by SB16.

“It doesn’t do anything to change how this industry operates.”

Given the rapid growth of online cash loans in recent years, change is just what this state needs, she contends.

The first payday loan company opened in Utah in the early 1980s. Today, there are 128 state-registered lenders, with more than 400 offices, mainly along the Wasatch Front. Many are open round the clock or until midnight, meeting a need that the industry contends no one else can or will.

Unlike other types of loans, payments by payday loan borrowers are not made over time. They must pay the entire amount borrowed - plus interest - in one lump sum, typically in about two weeks. Borrowers who cannot pay in two weeks must “roll over” their loan, accruing more fees - for up to 12 weeks.

The fact that such a high APR is being charged to people of low-to-moderate incomes led officials in a host of cities along the Wasatch Front to take steps to limit the number of payday advance loan lenders who can operate within their boundaries.

Even Congress passed a measure capping interest rates at 36 percent on payday loans for the nation’s military personnel after a number were denied security clearance because of high levels of indebtedness.

The tricky part for those pushing for reform at the Legislature, however, is that few payday loan customers appear to be interested. And abuses? Few complain to the state.

Plus, faxless payday loan companies are an organized and well-funded bunch at the Capitol. They also have the unspoken support of bankers on one key issue - interest rate caps.

Bankers, who have their own powerful lobby and hefty presence in the Legislature - oppose caps of any kind because such action could affect them, as well.

And that is why the passage of another payday measure, House Bill 329, sponsored by Rep. LaWanna Shurtliff D-Ogden, is anything but assured.
The bill does have some bipartisan support.

“But I’m not sure how it is going to do because it was started so late,” said Rep. Paul Ray, R-Clearfield, who has lobbied for tougher laws pertaining to no fax cash loan lenders.

Click here to read the rest of this Salt Lake Tribune article.

This entry was posted on Monday, February 5th, 2007 at 11:22 am and is filed under Utah.