Get tough on payday lenders

Payday lenders say they are going to police themselves, applying new standards designed to protect consumers who may feel tempted to get into debt far beyond their capacity to repay.

We applaud their concern, but the effort falls far short of what is needed.

Unfortunately, Utah lawmakers are unwilling to do the one thing that really would provide some protection — impose limits on the interest rates of such loans. Typically, they make free-market arguments to avoid such limits. If the rates were too high, people wouldn't borrow money. In Utah payday loan stores outnumber all the 7-Eleven, McDonald's, Burger King and Subway stores combined, and this supposedly is because of market demand.

But it may also be because payday lenders charge an average interest rate of 521 percent annually, with some going as high as 900 percent. You don't need a lot of business to turn a healthy profit at those rates, nor do you have to sell a lot of loans to provide contributions to the campaigns of state lawmakers, as the lenders have. It also helps business that they locate in low-income areas, where they can more easily prey on the vulnerable.

Banks also oppose interest-rate caps. Some of them charge 120 percent or more for overdraft protection on checking accounts.

Yes, people may have legitimate reasons to seek a short-term loan for a necessity. But a study by the Center for Responsible Lending last year found that a typical payday borrower pays $793 for a $325 loan. In the old days, that type of thing was called usury. Today it's apparently just a reasonable profit off of people who either are down on their luck or incapable of understanding finances.

The lenders say from now on they will stop the ads that promote their services as a way to finance a night on the town or some other frivolous expense. They will allow lenders to extend their payments at no extra charge if they can't pay off the loans on time. Also, all ads for payday loans will include warnings that they are to be used for short-term needs only.

Other states have had little trouble capping loan rates. Congress recently imposed a cap of 36 percent on loans to families of military members.

In Utah, lawmakers recently passed a bill that would fine lenders for not following disclosure and licensing rules. A separate bill, HB329, would require loans to be for no less than 30 days, impose tough disclosure rules and ban intimidation tactics, such as telling lenders they will be prosecuted criminally if they fail to pay. It would prohibit lenders from giving new loans to people who already owe them money.

These all would be good steps. They should be combined with a reasonable limit on interest.