Payday Loan Times

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.

“I really don’t know what problem we’re trying to take care of, with 30 complaints,” Cashmore said.

Shurtliff said she wants to help “the single mother whose lights are going to be turned off” because she lacks $100. She said better statistics about the industry are needed. “I wish we had some statistics to see, … but we don’t have that information,” she said.

“You’ve provided the solution,” Rep. Stephen Clark, R-Provo and co-chairman of the committee, said, “but we need to know what the problem is. … Our biggest problem is we don’t have data on which to make decisions. I really believe if we can get good data first, that we can really attack this issue.”

Laura Polacheck, advocacy director for AARP Utah, suggested a 30-day no fax payday advance loan term, a $500 loan limit and interest-rate caps. “Now, we have nothing (no rate caps), so what we’re saying is, at least make it somewhat reasonable and affordable for people to be able to pay it back, instead of getting them deeper and deeper into debt,” she said.

“Essentially we want, short of what we can get here with an interest rate cap, is we want the loan to be more affordable and more reasonable. We have a lot of evidence from other states about how that can be accomplished, and we have a lot of evidence from other states about savings for consumers. So we really don’t have to completely reinvent the wheel.”

Much of Wednesday’s meeting was spent haggling over the arithmetic of annual prime rates and fees and their effects on certain-size personal loans.

Sen. Bill Hickman, R-St. George, said APRs may seem high, but the real dollar cost of interest “is not very high, and therefore the cost to the consumer for the convenience, it appears to me, is not too burdensome.”

House Majority Leader David Clark, R-Santa Clara, said payday lenders are in an open market without a lot of government intervention about price. “The market has spoken. … There’s obviously a basic need out there that this is providing,” he said.

And Clark was among several speakers who suggested that some people opt for cash advance online lenders because other alternatives — such as fees and other expenses for account overdrafts — are more costly.

Ed Leary, commissioner of the Department of Financial Institutions, noted that five bills on payday lending have passed since 2004. He expressed willingness to implement more changes, should the Legislature pass them, but said customers are informed and treated fairly by payday lenders.

“I do believe, personally, the majority, if not almost everybody that walks out of that payday lender store, understands what they’re paying, what they’re getting and what the outcome is,” he said, adding that “they may not like it.”

Senate Minority Assistant Whip Ed Mayne, D-West Valley, pushed Leary to meet with legislators and industry representatives to iron out issues and solutions, although Cashmore said the industry of payday loans would be against submitting data involving proprietary information. “We need more solid Utah data,” Mayne said. “If we don’t get that, we can’t move on this stuff.”

“I’m willing to do it,” Leary said. “I just don’t know, at the end of the day, you’ll be able to say it’s abusive or it’s not abusive. I think you’ll have numbers, but people will say that represents certain things.”