Interest on a typical Utah payday loan is 554% APR


Utah high-interest payday loan companies say pandemic is hurting their already struggling industry – where nearly one in three stores have closed in a four-year crisis amid tighter regulations . Critics say government aid for coronaviruses may have reduced the need for such loans.

As the surviving loan stores try to survive, they have raised their already astronomical rates – from an average annual rate of 523% a year ago to 554%, according to a new state report. (This is also 20% more than the average of 459% they were billing four years ago when their crisis started).

At this new average rate, borrowing $ 100 for just one week costs $ 10.63.

If a borrower pays this off in 10 weeks – the time limit that Utah law allows lenders to charge such high interest on short-term loans – the interest would cost more than the original amount borrowed ($ 106.30 vs. $ 100).

Some of the loans in Utah cost much more than this average.

The highest rate charged by a Utah payday lender in the last fiscal year was 1669% APR, or $ 32 per week on a $ 100 loan. Interest for 10 weeks at this rate would cost more than three times the amount borrowed ($ 320 versus $ 100).

In short, beware of the buyer.

Payday lenders close

Among the many reforms passed by lawmakers in recent years, the Utah Department of Financial Institutions was to track and report basic information on high interest lenders each year, including average rates charged and highest rates. and the lowest found. It also tracks the number of high interest lenders in the state.

(Christopher Cherrington | The Salt Lake Tribune)

For the 2019-2020 fiscal year which ended June 30, the state reported 382 payday loan stores operating in Utah – down 8% from the previous year and 31% on a period of four years.

“Several national companies have closed sites, either by consolidation or by lack of profitability. This could be attributed to the highly competitive and regulated market in which we operate, ”especially since Utah has tightened regulations in recent years, said Wendy Gibson, spokesperson for the Utah Consumer Lending Association. industry.

She adds that the pandemic has hurt.

“The recent pandemic and its impact on the economy have dramatically affected the volume of loans in the payday lending industry at the local and national levels,” Gibson said. “As a result, we issued fewer loans and smaller loan amounts. “

Bill Tibbitts, director of the Coalition of Religious Communities, criticizes these loans because he says they hurt the poor, speculates that one of the reasons the demand for loans is declining is because of the stimulus measures generous and higher unemployment checks that the government provided during the pandemic.

“How many people have used their stimulus payments to pay off their payday loans? He asked, adding that the government aid may also have helped some potential clients avoid loans in the first place.


Rep. Brad Daw, R-Orem – who passed a series of reforms last year against payday lending, but was defeated for re-election this year – says the tightening of rules may also have forced some of what ‘he says he is the worst players in the industry.

“My experience has led me to believe that a lot of little guys are some of the most abusive lenders. They are the ones who go bankrupt, ”he said. “The bigger ones, they start to be watched enough to start behaving a little more.”

Most payday loans are for a term of two weeks or until the borrower’s next payday. Reformed Utah law now allows them to be renewed for up to 10 weeks, after which no further interest can be charged.

Among other recent reforms in Utah, there has been a formal ban on using new loans to pay off old ones (although critics say this is still happening under pressure from lenders); establish the right of borrowers to terminate their loans promptly and without charge; and the requirement for lenders to make available a long-term interest-free repayment program (instead of just suing for non-payment, which results in high penalties as well as attorney and court fees).

This year, the legislature also banned a practice used by Loans for Less that put some of its borrowers in jail for not responding to a summons for non-payment, unless they could pay hundreds of dollars in. bail (which then went to Loans for Less). Even the Payday Loan Industry Association testified that the practice was so predatory it should be banned.

No more change needed?

A report by the Legislative Auditor General from last year said new regulations still don’t prevent chronic use of payday loans – which can serve as a “debt trap” where the poor may not escape the surge. soaring interest without new loans to cover old ones or possibly filing for bankruptcy.

Auditors looking at state data found that 2,353 borrowers in Utah each took out more than 10 payday loans in a year. He revealed that a man had 49 payday loans during the year – and paid $ 2,854 in interest on a loan balance that averaged $ 812.

Still, Daw says that “it’s a good trend” that state data shows more payday lenders are closing, issuing fewer loans for less money, and fewer borrowers defaulting on their payments. But he and Tibbitts are worried about the current rising interest rates and what that may mean for the poor in tough times.

The rate hike could be due to lenders not collecting some lucrative penalties, fees and other fees because fewer loans are past due, Daw said.

Tibbitts said: “We are in a recession because of the pandemic. And we hear rates going up. This is of concern ”for borrowers who are often low-income people.

Gibson, with the Association of Payday Lenders, said that despite the state’s findings on higher interest rates, “We are not aware of any lender that has adjusted its prices upward during the period. pandemic. In fact, we know that many Utah lenders have been proactive in responding to customers directly affected by the pandemic by reducing payments, delaying payments, or implementing special payment plans. “

Debt trap?

Still, Tibbitts said the higher rates found by the state make it harder for the poor to escape such loans. “The first rule is that when you’re in a hole, stop digging. But taking out a payday loan always puts you in a deeper hole. “

Gibson disagrees.

“Payday loans offer borrowers much better and cheaper options than bank overdrafts, late mortgage payments or utility disconnection fees,” she says. “If you bounced a check for $ 100 with an overdraft fee of $ 39, the APR would calculate 2,033.57%. … Our customers are smart; they do the math and choose the cheapest option of taking out a payday loan.

The head of a non-profit organization that helps people settle their debts with creditors disagrees.

Ellen Billie, executive director of the AAA Fair Credit Foundation, explains that when new clients who have payday loans are asked how much interest they think they’re paying on them, many will say 30 or 40 percent – not realizing that it This is often over 500%, despite signing disclosure forms containing this information.

Many of its clients report that they use payday loans because they think they cannot qualify for other loans and because payday lenders are friendly. Many borrowers say they need it to buy or repair a car, to cover medical bills, or to pay rent or catch up on a mortgage.

“They think it’s their only choice. But there are other options, ”Billie said. “If they come to us before they take out a payday loan and can’t pay their rent or mortgage, we have resources to put them in touch with. There is rental assistance for emergencies.

She said some people take payday loans to pay their medical bills, while payments directly with a doctor or hospital would be much cheaper.

Payday loans should almost always be avoided, Billie said.

“I would never tell anyone no [to use one] to feed their children. If they have exhausted all possible resources, this may be the best solution for them. But we’ve never seen that. There are always resources we can help them with.

Meanwhile, many states have banned or cracked down on payday loans. Voters in Nebraska, for example, just approved a campaign initiative to limit interest on loans to 36% APR. Sixteen other states and the District of Columbia previously had 36% interest limits in place.

Similar national legislation has been introduced in Congress. In addition, Congress in 2006 capped all loans to active duty military personnel at 36%.

Beyond the rate caps, Arizona, Arkansas, Georgia, Maryland, Massachusetts, New Jersey, New York, North Carolina, New Mexico, Pennsylvania, Vermont and Virginia – Westerners completely ban these types of loans, according to the Consumer Federation of America.


Milton S. Rodgers

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