Utah payday lenders began refusing Monday to make loans to members of the military rather than give them much lower rates mandated by a new federal law.

That new law, which took effect Monday, caps the annual interest on payday, car title or tax refund anticipation loans at 36 percent annually for members of the military and their families. A 2005 Deseret Morning News series found payday loans here averaged a whopping 521 percent interest, and car title loans averaged 300 percent.

Cort Walker, spokesman for the payday loan industry's Utah Consumer Lending Association, said Utah payday lenders simply cannot make a profit if they charge only 36 percent — so they will decline to do business with members of the military.

"At 36 percent annual percent rate, the total fees we could charge are $1.38 per $100 for a two-week loan. That is less than 10 cents a day," Walker said.

"Payroll advance lenders could not even meet employee payroll at that rate, let alone cover other fixed expenses and make a profit," he said. Walker added that for such lenders to reach the break-even point they must charge about $13.70 per $100 loaned for two weeks.

Walker said Utah payday lenders will now ask potential customers if they are active members of the military. If they are, "we cannot offer them a loan," he said.

While refusing loans to someone based on such things as race or religion would violate civil rights laws, the payday loan industry's lawyers say refusing service to the military does not violate laws because "you can't force a business to enter into a transaction that causes it to lose money," Walker said.

Jerry Jaramillo, a supervisor with the Utah Division of Financial Institutions, said the state is beginning to review the new law and its ramifications. He said it will watch for complaints and what future court decisions may say about such things as refusing loans to the military.

Walker said, "This law will force the members of the military to choose between more expensive alternatives like bounced checks or overdraft protections and even unregulated and more risky alternatives, like offshore Internet lending."

Linda Hilton, a payday loan industry critic and director of the Coalition of Religious Communities, disagrees.

"It may be taking an option away from the military, but it's taking away their worst option and leading them toward others," she said. "People who go to payday loans first often find themselves deeper in debt and trouble than when they started, then they ask their church, military relief groups, family or others for help — places they should go first."