Payday loan industry to alter ways 'voluntarily'

Amid increasing scrutiny by lawmakers and the press nationally, the payday loan industry announced Wednesday voluntary changes it says will better protect and educate customers and help them avoid being trapped into long-term debt.

"We have listened to concerns raised about our industry and have developed innovative solutions to address them," said Darrin Andersen, president of the payday loan industry's Community Financial Services Association of America.

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Among voluntary changes it announced are banning ads that promote payday loans for frivolous purposes; allowing customers the option of an extended payment plan at no extra cost if they cannot pay off a loan on time; and putting a warning on all ads and promotions that such loans are for short-term needs only.

Cort Walker, spokesman for the Utah Consumer Lending Association, said the state group of payday lenders supports those national actions. "These new initiatives will ensure that member companies hold themselves to a high standard of responsible service and will help customers make better financial decisions," he said.

However, industry critics say the changes are not worth much. "It amounts to saying that they have a really bad product, so be careful. I'm not sure that I see that as a big step forward," said Laura Polacheck, advocacy director for AARP Utah, which often fights the payday loan industry in the Utah Legislature.

Polacheck said the industry already generally warns that the loans are for short-term needs only, and says it has been hypocritical to say that "and then have ads promoting using them for vacations or a night on the town. At least that should stop now."

She said allowing extended payment plans could be worthwhile, depending on how they are implemented. CFSA materials said they should allow paying off a loan in four payments with no extra interest on a customer's next pay dates. Lenders would not begin collection proceedings against customers complying with such a payment plan.

But it also adds that such plans may be made available only once a year to customers. Polacheck said she worries it still might allow some to get caught in a cycle of taking out new loans to pay off old ones at triple-digit interest.