Payday Loan Times

The once-explosive growth of instant payday loan stores in Utah — which often offer two-week loans for a whopping 500 percent annual interest rate — appears to have hit a saturation point and cooled.

The number of such lenders grew only 4.7 percent in the past two years, from 427 to 447 stores, according to the Utah Division of Financial Institutions.

That is much slower growth than in recent decades. The first payday cash advance lender appeared in Utah in 1984. Their number had grown to 17 stores in the Salt Lake area by 1994. Then they exploded to 427 registered statewide in 2005.

The current total of 447 is still more than the number of 7-Elevens, McDonald’s, Burger Kings and Wendy’s in Utah — combined.

The industry and its critics disagree whether slower growth comes because it is maturing and reaching a saturation point, or if restrictions on them by a growing number of cities are also slowing growth.

“We are just seeing a maturing in the industry. People who watch the industry said that it would be maturing and reaching a plateau. That is what is happening,” said Cort Walker, spokesman for the payday loan industry’s Utah Consumer Lending Association.

Jerry Jaramillo, supervisor of savings and loans and trusts for the Division of Financial Institutions, said the growth of providers of faxless payday loans over the past two years is similar to growth shown by other financial institutions such as banks or savings and loans, which tend to mirror population growth.

A critic of the industry, Linda Hilton, director of the Coalition of Religious Communities, said another reason for slower growth may be that more cities have restricted how many payday loan stores they will allow, often preventing any new stores in their boundaries.

“There are definitely fewer places, at least in Salt Lake County, where they can open and do business, and that may be a factor,” she said. Cities that have at least some restrictions on new payday loan stores include Draper, Midvale, Orem, Sandy, South Salt Lake, South Jordan, Taylorsville, West Jordan and West Valley City.

Leaders in Salt Lake City and Salt Lake County also have been discussing restrictions.

Walker dismisses city cash advance restrictions as a reason for slowed growth.

“It just hampers a consumer’s ability to find the most convenient location,” he said. “What should be disconcerting is that the fewer the lenders that are present, the fewer the choices consumers have. As competition is limited, that is bad for consumers.”

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.” (Read on …)

A watchdog group says payday advance loan lenders might continually escape tighter regulation in Utah because of the growing political donations made by their high-interest-rate industry.

But such Utah lenders say that study is unscholarly and poorly documented, and say efforts to restrict their industry have failed mostly because such proposals would have hurt consumers — not because of their political donations.

MAPLight.org, a California-based nonpartisan group that says it seeks to illuminate connections between money and politics, looked at donations from instant payday loan lenders nationwide. But it focused on seven states where it said the percentage of overall donations that came from payday lenders was higher than elsewhere: Utah, Idaho, Illinois, Kansas, South Carolina, Tennessee and Texas.

“We found that during the last eight years, as total industry campaign contributions in these states increased, state laws allowed the industry to continue operating without significant restrictions,” it said in a new study.

It said fast cash loan lenders gave $76,200 to state-level candidates in Utah between the 1996 and 2006 elections. That was less than half a percent of all money donated in that time, but it was a higher percentage than was given in most states.

The study said that about a dozen bills were proposed but failed in the Utah Legislature in that time either to cap the high interest rates the industry charges or to more tightly regulate it. However, it said three bills with relatively minor restrictions did pass.

Cort Walker, spokesman for the Utah Consumer Lending Association, which represents local no fax cash advance lenders, complained the study does not identify well its sources of information — including exactly whom it considered to be payday lenders, so it is impossible to verify its information.

(The study numbers may indeed have problems — but payday lenders may have actually given more than it said. The Deseret Morning News in a quick, noncomprehensive look at databases Tuesday, identified at least $95,000 that such lenders gave in Utah in the period. About 20 percent came of that from out of state. But the study identified only about $76,000, and said 85 percent of it came from out of state.)

(Read on …)

After lengthy testimony Wednesday about the quick payday loan lending industry and its supposed advantages and disadvantages for Utahns, a legislative committee was left wondering just how much interest it should pay to the topic.

The Business and Labor Interim Committee heard several speakers say the industry needs more regulation to prevent gouging of financially strapped Utahns, but it also heard industry representatives say customer complaints do not warrant more legislation.

While an exact number of such loans has proven elusive — Rep. Phil Riesen, D-Salt Lake, said $452 million a year is loaned to Utahns — the state Department of Financial Institutions in 2006 received only 39 complaints about payday advance lenders, down from 52 the previous year. Of the 39, 32 were about Internet-based lenders, including 27 from nonresidents.

The state has 168 payday lenders with a total of 354 locations. Seventy-nine are Internet-based, of which 27 are based in Utah.

Rep. Lou Shurtliff, D-Ogden, is pushing a bill that would limit bad credit cash loans to $500, give borrowers 30 days to repay them and collect data to better determine the industry’s effects, including the impact on people “caught up in the web that they can’t escape.”

“There are people that are struggling because of payday loans,” she said, noting that payday lender locations are not in more-affluent neighborhoods. “Truth is, many of our citizens are being hurt by payday loans.”

She suggested the low complaint statistics may be due to customers’ embarrassment about their situations.
Riesen noted that Utah has more payday lender locations than all 7-Eleven, Subway, McDonald’s and Burger King sites combined. He wants more oversight of the cash advance industry.

“Payday lenders are taking unfair advantage — some say unconscionable advantage — of those in real need,” Riesen said.

Wendy Gibson, spokeswoman for the Utah Consumer Lending Association, said the association supports education for consumers, but studies indicate online payday loan lenders are an important and less-expensive option for consumers needing money. She suggested holding off on more legislation until determining if the most recently passed law is effective.

Gibson and Kip Cashmore, vice president of the association, said the market is working.

(Read on …)

State regulators are willing to discuss with legislators the activities of payday cash advance lenders - but are not planning to push any specific bills this year.

Instead, a legislative committee was told Wednesday, the Utah Department of Financial Institutions wants to see if a pair of bills passed during the last general session will be effective.

Paul Allred, deputy commissioner of the department, told the Business and Labor Interim Committee — meeting to decide what issues to study this year — that SB144 and SB16 featured provisions about payday and title lending institutions. Specifically, SB16 allows fining faxless payday loan lenders for various disclosure and licensing violations.

Allred also noted that a federal law passed in 2006 limits to 36 percent the interest rate payday lenders can charge military personnel and their family members.

“We don’t disagree that some of the issues needed to be discussed that were brought up in other bills during the session and that we support the Legislature studying that on an interim basis. … The things that we were able to accomplish in SB16 we feel will give us the ability, and we like the opportunity to see if those additional tools help us in enforcing it,” Allred said. “But we don’t have any priorities beyond what we had in SB16.”

A Deseret Morning News series last year showed the median rate charged by Utah payday loan lenders is 521 percent annual interest. A Morning News series in 2005 found that Utah has more payday loan stores than 7-Elevens, McDonald’s, Burger Kings and Subway stores combined. Most are concentrated in areas that are poorer, heavily Hispanic or near military bases.

Still, Allred reiterated that his department receives few complaints about check cash advance lenders, usually only 10 to 20 written complaints per year.

“The sense that we get is that those who use the payday lending understand the product. They know what they’re getting. They understand that they’re paying a high rate of interest,” he said. “But it’s an alternative that they are choosing to take. And we hope that with passage of the bill this session, that we gained some tools that will give us the opportunity to make sure that those infractions that we see, that we can take care of in a more precise manner.”

Francine Giani, executive director of the Utah Department of Commerce, said her department, which does not have regulatory authority over no fax cash loan lenders, receives 20 to 30 complaints about those lenders annually. Most are about high interest rates.

“Thirty-six percent for our military boys is great, but I can tell you that we have consumers that are paying 400 and 500 percent interest rates,” Giani said. “And we ask (and), well, they understand because they’re desperate and they go in and go ahead and sign all the papers and say that they’ll do all that they’re expected to do. They are are behind the eight ball by and large because they cannot get themselves out of debt.”

Allred noted that borrowers who pay back loans quickly face fewer problems. As an example, he said a lender gets 69 cents for a $100 loan for one week at 36 percent interest. That same $100 cash loan would have interest of 520 percent if there is a charge of $10 that is annualized over a year.

“But if the borrower pays off the loan in a week, they’ve paid $10,” he said. “So you need to look at that careful analysis and understand what’s occurring.”

Feeling the pressure of proposed legislation to do more to regulate Utah payday loan lenders, industry representatives have taken to the airwaves with commercials that are basically “buyer beware” messages.

The Legislature has refused to impose interest-rate limits, even though the “average” interest rates charged by these establishments is 521 percent annually. Some charge as much as 900 percent a year.

Absent a clear mandate from state lawmakers, the industry says it will police itself. But the issue is not dead. Some city councils are considering what they can do to curb the proliferation of these online payday advance businesses, which outnumber all the 7-Eleven, McDonald’s, Burger King and Subway stores in Salt Lake County combined.

Earlier this week, the Sandy City Council approved an ordinance that limits the number of payday loan businesses to one per 10,000 residents. The ordinance, which passed on a 4-3 vote, also requires that these personal cash loan businesses must be located at least one mile from one another. The Salt Lake City Planning Commission also is studying the issue.

The Sandy City Council is to be commended for its attempts to curb payday lending, which can imperil unsuspecting people who are already in financial straits. Limiting the numbers of fast payday loan lenders in a given municipality may help deter borrowers, or at least curb the convenience appeal many payday lenders use in their marketing.

No matter how cities craft ordinances to limit these businesses, it will be impossible for elected officials to save borrowers from themselves. These businesses serve people who have no access to traditional forms of credit. They may turn to these cash advance payday loan lenders as their last resort.

But do these lenders have to charge such large interest rates?

In Utah, payday loan stores collect at least $69 million in excess, “predatory” fees each year, according to the Center for Responsible Lending. Despite assuming considerable risk in offering these loans, it would appear that these businesses make more than handsome profits.

The Legislature isn’t about to impose interest caps. Thus, the issue of bad credit payday loans is in the hands of city and county governments. We hope they will follow Sandy city’s lead in limiting the numbers of these establishments, which could conceivably entice consumers to consider other options or at least to become better educated about the long-term consequences of quick loans.

The southeast Salt Lake Valley suburb of Sandy all but closed its borders to new Utah payday loan stores Tuesday.

The City Council voted 4-3 Tuesday night to restrict the number of “non-depository” financial institutions - those offering fast payday loans, check cashing, deferred-deposit advances or car-title loans - to one per 10,000 residents and require at least a mile between outlets.
Sandy currently has 10 payday loan stores. The city plans to include unincorporated islands in its head count when enforcing the new ordinance, boosting its population from 95,000 to 108,000, which means it has room for one more store.

Council members Scott Cowdell and Linda Martinez Saville, who voted against the measure, supported a stricter version that would have only counted population within the city limits and not allowed any new stores. Steve Fairbanks was the only council member who opposed any restrictions on the number of outlets.

In recent years, West Valley City, South Salt Lake, Taylorsville, West Jordan, South Jordan, Draper and Midvale have placed density restrictions on payday advance stores, making Cottonwood Heights Sandy’s only neighbor without such limits. Salt Lake County and Salt Lake City are considering similar action.

Tuesday, Sandy City council members worried their city - absent restrictions - would become a haven for check cashing stores.

“I don’t believe we should be legislating against specific businesses,” Councilman Chris McCandless said. But “we are the course of least resistance, and [the payday loan] business - like water - is going to come to us, naturally, without some restriction.”

John Swallow, Check City’s corporate counsel, doesn’t agree with efforts to limit the payday cash loan industry’s growth, but said, after the meeting, that he understands the council’s decision.

“It’s a snowball thing,” said Swallow, a two-time Republican congressional nominee. “Personally, I think the market would dictate the number of stores . . . [But] I can appreciate [the council members'] struggle.”

(Read on …)

This was supposed to be the year that consumer advocates were going to persuade the Legislature to clean up the Utah payday loan industry.

Instead, only one of several reform measures was approved. SB16, endorsed by the faxless payday advance industry and state regulators, establishes financial penalties for payday loan operators that break state law.

Payday loan operator Cort Walker, spokesman for the Utah Consumer Lending Association, said Friday his group is happy with the passage of the Senate bill.

“The passage of SB16 further enhances the ability of Utah to regulate payday lenders while allowing the industry to serve consumers in a responsible manner - it is a win-win for the customer and the industry,” he said.

Critics of the payday cash loan industry, though, said the bill, sponsored by Sen. Ed Mayne, D-West Valley City, didn’t go far enough to protect consumers from the dangers of taking out loans with interest rates of 400 percent or more.

Other measures favored by advocacy groups such as the Coalition of Religious Communities and AARP failed.

House Bill 329, sponsored by Rep. LaWanna Shurtliff, D-Ogden, among other things would have capped the maximum cash advance amount at $500. Shurtliff did not immediately return calls seeking comment about her proposal.

Also failing was HB159, sponsored by Rep. Lorie Fowlke, R-Orem, which would have called for a legislative study of the payday loan industry.

Laura Polacheck, AARP Utah’s associate director, said the legislative session was disappointing from the standpoint of online payday loan industry reform but hopes that she and others have laid the groundwork for real change next session.

Only one more Utah payday loan store might be allowed in Sandy if the suburb decides to shut its door to such businesses.

The City Council has postponed for two weeks a vote on whether to limit non-depository financial institutions - those offering payday loans, check cashing, deferred-deposit advances or car-title loans - to one per 10,000 residents and to require at least a mile between such stores.

That would leave room for only one more store in Sandy, which currently has 10 outlets after three moved in last year. Four more companies hope to open instant cash loan stores in Sandy, but their applications are on hold until the council decides whether to limit the operations.

Councilman Scott Cowdell, who supports restrictions, asked city staffers to study whether such stores have a history of attracting crime.

But his council colleague Steve Fairbanks said the issue has been clouded by “emotional reactions” to the industry’s high interest rates, which typically start at 400 percent a year. He also disputed the notion of any correlation between bad credit payday loans and drug-related crimes.

Fairbanks would prefer to let the market decide how many stores locate in Sandy. Without competition, he argued, the outlets would have no incentive to consider lowering their rates.

“We’re hurting the people we think we’re saving,” Fairbanks said.

Salt Lake City and Salt Lake County also are considering density restrictions on payday cash advance lenders. South Salt Lake, West Valley City, Taylorsville, West Jordan, South Jordan, Draper and Midvale already have them.

At a public hearing this week, three people who work for Check City, including general counsel John Swallow, told council members the check cash advance industry provides an emergency cash source for low- and middle-income consumers when banks won’t help.

(Read on …)

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.

(Read on …)