Payday Loan Times

Orem city officials have put a cap on the number of payday advance lending stores they will accept in their city, hoping to limit the opportunities for residents to become buried under loans with annual percentage rates as high as 800 percent.

The Orem City Council has adopted an ordinance, similar to other cities in Utah, that limits the number of deferred-deposit loan stores to one store for every 10,000 residents.

Leaders in Salt Lake City and Salt Lake County are considering similar ordinances.

Critics of online payday loan lenders applaud such moves, but industry representatives said they will only hurt consumer choice.

Orem has 23 such stores for approximately 90,000 residents — Check City, Check Into Cash, Quick Loan, to name a few — far more than the nine it should have under the new ordinance.

“They’re doing good business,” said Myla Dutton, executive director of the Community Action Services and Food Bank, an organization dedicated to helping low-income residents. “That’s why they’re here. They’re not hurting for business.”

Stores now in Orem can remain open under the “grandfather” clause, but should one close, another cannot open until the number of stores drops below nine.

No faxing payday loans allow people without good credit to get quick loans from $10 to $1,000 for as little as $20.

The expensive money loan is due in a week or after the person’s next paycheck — with interest.

If the person can’t pay, they often roll over the loan, gathering more interest and promising to pay the next week, Dutton said. However, with APR, or annual percentage rates, at well over 500 percent, the interest quickly can become more than the initial loan.

The first fast cash loan business popped into Utah in the mid-1980s, and now there are more than 400, said Linda Hilton, director of the Coalition of Religious Communities in Salt Lake City. Hilton has been working to educate people on payday lending since 1999.

“It’s been around for a long time,” she said. “In the Depression it was called loan sharking, and Al Capone ran it. It’s (now) legalized loan sharking. The growth of this industry is growing faster than Starbucks.”

Dutton said some of her surveys of low-income families in Utah, Wasatch and Summit counties showed that 12 percent to 15 percent of those they served have used payday lending and “most of the time they do not understand the costs,” she said.

The true cost of credit over a one-year period is called the annual percentage rate, which includes the account fees and interest. So when someone pays $225 for a $200 faxless cash advance loan in a week or two, the APR gets enormous.

“They see it as easy — in five minutes, just sign here, get the $100 you need,” Hilton said. “They don’t understand it’s a high interest that next week. They owe it 100 percent and owe it in full in one week.”

However, payday lenders argue their fees are not any more punishing than those of banks and credit unions.

“We are actually enhancing the welfare of our customers, who might be facing more onerous costs associated with things like bounced-check fees and late bill payment fees,” said Tom Linafelt, director of communications for QC Financial Services, which has a store at 1145 N. State in Orem. “The reason banks don’t make small-dollar, short-term loans is they’re making billions of dollars on bounced-check fees.”

And while critics agree there are times when faxless payday loan lenders fill a great need, such as quick cash to repair a broken car so the owner can get to work, it’s the lack of education that is most worrisome.

“When people are in a crisis, they aren’t always considering the long-term effects of what they’re doing,” Hilton said. “Desperate people make desperate decisions.”

Yet for many customers, visiting a check-cashing or payday lender isn’t a desperate decision — it’s a matter of convenience.

Orem resident Daniel Looman said it’s easier for him to pop into Instant Check Cash at 1207 N. State every few weeks and pay a small fee of $1 or so to get his work checks cashed. Kimberly Lunt uses the same store to pay her home-heating bill, where she can pay in cash. She’s never actually gotten a personal loan, however.

It’s these positive experiences on which payday lenders focus. And they say that an ordinance like Orem’s will hurt customers’ chances to shop around for the best services.

“We feel that the cash advance industry has proven itself time and time again as the option of choice for many Utahns,” said Cort Walker, spokesman for the Utah Consumer Lending Association.

He said the majority of payday advance loan industry customers are women in their 30s, who have completed high school and often several years of college with an average income of $42,000 — “pretty much middle America,” he said.

“There are stereotypes out there, that this is a product for low-income people, and that’s just not true,” Walker said.

Another misnomer is that lenders won’t work with customers, which also is not true, Linafelt said.

“So often, we are, as an industry, criticized for this cycle of debt, when the reality is, any customer can have more time to pay this off,” he said. “We work with customers to reach acceptable payment plans.”

Providers of instant payday loans also comment on the irrelevance of APR because their focus is short-term loans.

“APR is truly fiction when it comes to this product,” Walker said. “It doesn’t apply. Our statistics reveal that 90 percent of (loans) are paid off within four weeks and over half in two weeks. It’s a short-term product … to help somebody get through soft patches in their life.”

However, critics say that, just because a loan is shorter than one year doesn’t mean it can’t be measured in the same way — it will just have a more concentrated time frame.

Hilton is concerned that the state government has no data about how much money is being loaned, how often individuals default on those loans, or how often they have to roll over loans.

One bill introduced during the 2007 Utah legislative session, HB329, would have required deferred-deposit loaners to report more information. Advocates are hopeful a similar bill will be introduced and debated in the coming session.

But regardless of legislative action, payday lenders and check-cashing companies insist they are a great short-term solution.

“Our APR is 523 percent,” said Daniel Stokes, store manager of the QC Financial Services in Orem. “That’s pretty high. (But) interest rates on these are so high (because) they’re meant to be short-term.”