Among the 39 states that explicitly allow payday loans, 23 cap interest at rates that are lower than the median now charged by lenders in Utah: 521 percent annually. A median means half charge that amount or less, and half charge that amount or more.

So, half or more of Utah's payday lenders charge rates so high they would be banned in many states.

Utah did not regulate payday lenders at all until 1998. Regulations adopted then were fairly minor: Lenders must apply for a license; they may extend loans only for 12 weeks (meaning they are interest-free after that, but the lender can impose a variety of collection fees); and they must provide written contracts listing annual interest rates.

They must also post on signs their rates, both as an annual percentage rate and as a dollar cost. They must post signs with the phone numbers of state regulators, with whom customers could file any complaints.

As shown in the first part of this series, Morning News visits to 67 lenders showed about a quarter of them failed to post required signs. Several also gave misleading statements about interest rates to a reporter asking about loans.

Hilton complains that state law provides no financial penalties for payday lenders who violate regulations or mislead borrowers — and that inspectors do not perform any undercover inspections that could catch any deception used on borrowers.

However, Jerry R. Jaramillo, a supervisor in the Utah Department of Financial Institutions who oversees inspections of the industry, says the state can close any payday lenders who have too many violations or complaints. It has closed only one through the years, however.

Industrywide concern

As Hilton and others tried to toughen regulations on payday lenders, it set off alarms for banks, credit unions, industrial banks and others that worried it could also lead to interest caps and tougher regulation of them as well. They tried to keep the battle front far away from where it might hurt their businesses, which charge much lower rates.

Rep. Paul Ray, R-Clearfield, who works for a bank, is another who verifies that the entire financial industry expressed concern.

"If the Legislature caps one area, it might also lead to a cap on mortgage rates or a cap on car loans or credit card rates," he said about the industry's worries.

Frank Pignanelli tells how industrial banks reacted. He is a lobbyist for them. While most states do not allow commercial companies to own or operate banks, Utah does allow "industrial banks" owned by groups ranging from General Motors to Merrill Lynch and Volkswagen to make loans and take deposits nationally. Utah has become a haven for them, creating thousands of jobs.