By: Javi Calderon
Fiscally Sound or Fishy: Looking at Utah Payday LendingData
The state of Utah is known as one of the most unregulated states for alternative lenders like check cashers and deferred deposit (or payday loan) lenders.
Utah, in effect, has no limit to how much interest a lender can charge for a cash advance. While many states have been instituting a 36% annual percentage rate cap on short-term loans, the most notable regulation on Utah’s books is the 10-week life-span limit per loan.
The state, however, has recently passed a law that requires payday lenders to disclose certain information about their loans and report this info to the Department of Financial Institutions.
According to the information compiled by the DFI, 99.9% of all payday loans are paid off within the 10-week limit. This would suggest that the loans are affordable and not trapping consumers in a cycle of lending.
On the other hand, a report done by the Coalition of Religious Communities found that lenders file an average of over 11,500 lawsuits against defaulting borrowers per year. If this represents the .1% of customers that aren’t paying off their loans within the 10-week span, then lenders must be handing out over 11.5 million loans a year within the state.
For comparison sakes, the state of Missouri last year saw lenders hand out around 2.4 million payday loans.
Utah may be on the verge of adopting another relatively tame law to help corral the payday loan industry. Representative Brad Daw is resubmitting his proposal to create a state-wide database for payday loan borrowers in order to prevent a borrower from taking out more than one loan at a time.
This bill could serve as a reasonable middle ground between the industry who would obviously rather have no regulations, and the advocates who push for strict interest rate caps.
A spokesman for Veritec Solutions, who oversees such databases for several other states, says the program is relatively easy to institute and is quite affordable – a 50-cent charge per loan would adequately finance the system.
The database could even help lenders, by preventing borrowers from taking out numerous loans and in the end defaulting. Daw unsuccessfully tried to push a similar bill last year, but believes his plan could end the yearly debates whether or not to pursue more restrictions on the industry. He points out that since the state of Florida adopted the database system they have not felt the need to pass any other payday loan laws.
