Utah Taking Steps Towards Payday Loan Regulation
Without so much as an interest ratecap for payday loans, Utah is known as the wild west of the payday loan industry.
This is changing, however, as lawmakers cautiously craft laws to protect consumers without throwing off the balance of what they apparently believe is a useful and necessary lending product.
For years the only law of any consequence regarding short-term loans on the Utah books was a 10-week life-span limit for any cash advance loan. No matter the agreed-upon term of the loan, with any rollovers the loan must be paid back in full by the 10-week limit.
Recently, the state has started requiring all deferred deposit lenders to disclose loan information and report to the Department of Financial Institutions. At first glance the information gleaned by the DFI suggests that payday loans are under control, and in fact, are helping the community stay financially afloat. However, once you crunch the numbers, they paint a different story, an industry running wild with no provisions in place to keep greed in check.
See, according to the information provided to the DFI it seems that 99.9% of all payday loans are repaid within the 10-week limit, suggesting that the product is affordable and helpful. However, a look at civil claims court records show that over the last several years, payday lenders have levied an average of over 11,500 lawsuits per year against defaulting borrowers.
Therefore, if 99.9% of consumers are paying off their loans in a timely manner, then 11,500 should represent the remaining .1%. If you do the math, this suggests that Utah payday lenders are handing out around 11.5 million loans per year. Unlikely.
Does this mean more regulation is necessary to keep lenders honest? Representative Brad Daw believes so, and he thinks he has the solution.
Daw is resubmitting a plan that the state legislature shot down a year ago. A plan to create a statewide database that would catalog any citizen who takes out a payday loan in order to keep them from taking out multiple loans at a time.
This should keep borrowers out of trouble, and even help lenders by reducing the amount of defaulting customers. Daw believes his plan is a reasonable medium between the unregulated landscape the lenders would love to see, and the 36% APR cap that many community advocates push for; a cap that quickly leads to the extinction of payday lending.
Daw points out that since the state of Florida instituted the database system over a decade ago, state lawmakers have not felt the need to pass any more laws limiting payday lending. He hopes this could end the yearly debate on whether or not to pass more legislation.