"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.
He said the situation is not hurting regular, full-time judges because they do not handle small claims cases; those cases instead are handled by unpaid attorneys who volunteer as a service to act as small claims judges, where cases are usually heard at night.
Why are so many cases filed in Provo? It is where Check City the most active litigant among payday lenders is based. It filed 9,161 cases over the past three years, about a third of all cases by payday lenders.
Vance notes that people taking out payday loans with Check City "sign a paper agreeing that if the loan goes to default, they will have it adjudicated in 4th District Court. So we get cases from all over the state, as far away as St. George."
He adds that maybe because of that, "We don't have maybe even 10 percent of the defendants appear," because of the distance many would have to travel. So he said Check City or other payday lenders "usually receive a default decision."
Peterson, the U. law professor, says such agreements mean loan recipients may "have to travel a long way and find lodging, so even showing up in court could be more expensive than their original loan. People who take out these loans frequently are on the verge of falling into poverty, so traveling across the city or state is much less likely for them."
So, he said, payday lenders are more likely to get default rulings in their favor.
Peterson said considering all the small claims cases coming from payday lenders, "Maybe at this point we should change the name of small claims court to payday-lenders-get-whatever-they-want court."
Peterson said that by taking the cases to small claims court, payday lenders can essentially convert an unsecured loan into a secured one. "They can do a lot of collection remedies they could not pursue otherwise, such as garnishing wages, going after assets in bank accounts and possibly taking cars," he said.
But Cort Walker, spokesman for the payday lending industry's Utah Consumer Lending Association, said lawsuits "are only filed as a last resort because it's an inefficient way to transact business. It severs a relationship and ... it requires an out-of-pocket filing fee."
But Peterson notes that many payday lenders also require loan recipients to sign agreements to pay collection costs and attorney fees if they go into default, likely covering the payday lender's costs as part of any judgment.
Walker said many of the payday lender cases identified by the Morning News may be for "check-cashing" transactions, not just payday loans. But even if all the cases identified were for payday loans, he said that would still involve less than 1 percent of the 1 million loans the industry estimates it issues in Utah each year.
"Over 99 percent of cash advance loans are successfully repaid," Walker said. "This is a remarkable percentage considering the unsecured nature of the loans. ... This evidence shows that lenders are not issuing loans to consumers who cannot afford to repay them. Lenders want consumers to use payday advances responsibly."
But Linda Hilton, a payday loan critic and director of the Coalition of Religious Communities, said, "How do we know what percentage of all payday loans really go to court? We just have to take their word that they made 1 million loans here, but maybe it was only 100,000. How do we know? We have no reliable data."
She says that's why she favors Bell's bill, which would require collecting such data.
Bell said it is modeled after a Colorado law that requires payday lenders to report aggregate data on such things as loans made, rollovers and how long loans are outstanding. Sen. Karen Mayne, D-West Valley, is proposing a bill that also requires some such data, but not as much. She said state regulators back it, and it may be more likely to pass.
"Payday loans are a debt trap. That has been shown by every state that collects data. That's why we need data here," Hilton said.
But passage could be an uphill battle. Utah legislators in recent years have approved only a few modest regulations on the industry and killed much tougher restrictions sought by critics. That came as the industry has made significant donations to lawmakers.
In 2007 which was not an election year the industry gave $30,200 combined to 37 legislators (out of 104 total). Payday lenders gave more than credit unions or banks, which are traditionally some of the biggest donors in the state.
Among other political connections, Salt Lake County Republican Party Chairman James Evans, who is a former state senator from Rose Park, owns several payday loan businesses.
Also, several state officials and regulators have defended the industry. For example, Attorney General Mark Shurtleff has said some national studies have shown that when payday loans are banned, the poor turn to even more expensive options such as bouncing checks and are more likely to face foreclosures or repossessions.
Shurtleff added that regulators have reported few complaints from payday loan customers themselves, so the loans likely create few problems, and customers receive what they expect.
But Peterson said the high numbers and percentages of payday lender cases among small claims "put the lie to the claim." He said, "If 27,000 cases are filed, it means thousands of families are struggling. ... I feel people don't complain because they don't feel there is an advocate in the state that will take on payday lenders in their behalf."
Laura Pollacheck, a payday loan critic and associate advocacy director for AARP-Utah, added the number of claims "is just an outrageous figure." She added, "To have 50 percent of small claims cases from payday lenders means they can't say there is nothing wrong with the design of this product."Of note, the state has 447 payday loan stores registered, which is more than the number of 7-Elevens, McDonald's, Burger Kings and Wendy's in Utah combined.