Lawsuits by payday lenders swamp courts

27,000 Utahns sued for nonpayment since '05

Published: Sunday, Feb. 3 2008 12:00 a.m. MST

"Payday loan" stores say most customers of their 500-percent-or-so-interest loans can afford them. Ads call them "hassle-free" or "quick and easy." But payday lenders have sued nearly 27,000 Utahns for nonpayment since 2005, Deseret Morning News research finds.

That is 24 people sued each day, or one an hour. It is the equivalent of suing every man, woman and child in Clearfield, Midvale or Spanish Fork (each with populations of about 27,000).

Payday lenders filed so many lawsuits that they accounted for 51 percent of all small claims cases along the Wasatch Front during the past three years, and 58 percent of those filed just last year, the Morning News study shows.

In some courts, the strain is much higher. In Provo, 81 percent of all small claims cases were filed by payday lenders over three years. In West Jordan, 66 percent were.

"It's shocking and tragic that one type of lender, which only a few years ago was completely illegal (before interest rate caps were erased), has virtually come to own the small claims court system," said University of Utah law professor Christopher Peterson, who has written books on predatory lending.

But payday loan industry spokesmen say 99 percent of their loans in Utah are successfully repaid without court action, and they say they use court action only as a last resort.

"It's amazing," state Sen. Greg Bell, R-Fruit Heights, said about all the cases filed. He says they show the need for a bill he is pushing to require payday lenders to disclose more data about how many loans, defaults or "rollovers" to cover earlier loans the industry processes to help show if it helps the poor, or if it creates problems.

"Your numbers show there are probably some problems," he told the Morning News.

Payday loans are usually given for two weeks, or the next payday, to those with poor credit. A Morning News study in 2005 found the median annual interest on them here was 521 percent, or $20 for a two-week $100 loan. Critics contend the needy often cannot repay the loans on time and take out more loans at the high rates to cover them. The industry says charges just barely cover processing costs.

The newspaper searched computerized court records to see how many small claims cases were filed in Utah from 2005 through 2007 by companies registered as "payday loan" lenders with state regulators.

It found at least 26,762 such cases, filed by a combined 52 different payday loan companies.

Virtually all of the cases filed were in districts along the Wasatch Front, not in rural areas. The numbers of cases include Provo district, 9,620; Ogden, 5,615; Salt Lake City, 3,909; West Jordan, 3,344; Layton, 2,198; Orem, 1,168; Spanish Fork, 399; Tooele, 273; and American Fork, 236.

The number of cases grew rapidly in those three years, up 75 percent from 6,535 in 2005 to 11,403 in 2007. It grew even faster in some courts. In West Jordan, the number of payday lender cases grew nearly ninefold. In Provo, they grew by 140 percent.

Payday lender cases are accounting for a higher and higher percentage of all small claims cases. They accounted for 42 percent of all small claims cases in those Wasatch Front courts in 2005; 51 percent in 2006; and 58 percent in 2007.

In Provo, 84 percent of all small claims cases last year were filed by payday lenders (and it averaged 81 percent over the three years).

"That means we have three full-time clerks who essentially do nothing but handle payday loan cases," said Paul Vance, trial court executive for the 4th District Court.

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