Lawsuit in Utah Could Define Rates on Payday Loans in State

Historical archive, first published 2006 — payday-lending laws and rates have changed since. Preserved for the record.

A lawsuit challenging the right of a business charge 400 percent interest on an overdue loan could lead to court-imposed caps on interest rates, late fees and other penalties charged by private payday advance lenders, defining illegal usury in Utah.

As reported by The Salt Lake Tribune, the suit was filed Friday in 3rd District Court. It was brought by Salt Lake County businessman David Helm, who says he borrowed $170,000 that was due on Jan. 1 and another $680,000 due on Sept. 15.

When he negotiated for more time to repay both personal loans, he claims Kang Sik Park charged him late fees, penalties and higher interest rates that more than doubled the amount of the two loans to nearly $1.9 million.

"We will be asking the court whether a 400 percent annual interest rate is usurious." said Helm's attorney James McConkie II. "We found some cases where a state judge determined that charging 60 percent is unconscionable. Because the Utah Legislature have given no guidance, it's led to abuse."

Park's attorney Paul Halliday Sr. agreed that Utah has no anti-usury laws. Utah lawmakers have "left it up to sophisticated business people to agree to whatever terms they wish, and whatever they agree to will be enforced. Helm is in default. If a borrower forgets when a loan is due or there's a change of circumstance and he doesn't pay, then these extra late fees and higher interest rates come into effect."

This issue, of course, relates to a lot more money than is ever given out via a cash advance payday loan, but the rates would affect those resources, as well.

Park, a retired Salt Lake City anesthesiologist, has issued many such "hard money" loans that are payable in six months to one year, said Halliday. McConkie likened Park's business, Kang Sik Park Rollover IRA, to that of online payday loan companies that charge annual rates of 400 percent to over 1,000 percent. And he said he's hopeful that state lawmakers would rather put caps on usury rates than a judge.

Two years ago, when a bill limiting interest rates was introduced, the banking industry opposed the legislation while credit unions supported the failed measure.

In the lawsuit, Helm said that in February 2005, Park loaned him $170,000 with an annual interest rate of 13 percent. If the loan was not repaid by Jan. 31, a default interest rate of 28 percent would be imposed along with a late fee of 13 percent of the full amount due and an additional 1 percent of the full amount due per day from the day the money was issued until the entire balance was paid in full.

When the large quick cash loan became due, Helm claims, both men agreed to an extension of the loan and that Helm's company, DCH Holdings LLC, would make monthly interest payments until both parties agreed to a new date on when the loan would be repaid.

In June, when Helm borrowed $680,000, he claims, Park insisted on the same terms if the loan went into default. When the second loan became due in September, Helm says he asked for a one-month extension with the understanding he would pay off the first loan.

But Park purportedly demanded nearly $300,000 in late fees, charges and interest on the first loan and $500,000 in late fees, charges and interest on the second loan.