PROVO — The city is exploring restrictions to quell clustering of payday lending stores to protect people from predatory lending practices and annual percentage rates as high as 800 percent.

City Councilwoman Cindy Richards said the issue has come to a head because she's seen fast-cash loan stores popping up around her district, some within blocks of each other. A number of her constituents are concerned with the proliferation.

Now the City Council plans to explore restrictions, similar to those adopted by 10 other Utah cities, that set limits on payday lending stores. According to the Utah Division of Financial Institutions, 15 payday lender branches operate in Provo.

Critics of payday lenders — where people can get quick, two-week loans for as little as $20 each — said they'd prefer heavier government scrutiny of the deferred-deposit loan industry, but added any action is a step in the right direction.

"Like the joke about the 10,000 lawyers at the bottom of the ocean, it's a start," said Art Sutherland, chairman of the steering committee for Crossroads Urban Center, a nonprofit organization that assists low-income Utahns.

But Wendy Gibson, spokeswoman for Utah Consumer Lending Association, said restrictions on payday lenders would be counterproductive. Capping the number of payday lenders would drive down competition and increase rates customers would pay, she said.

"Endorsing a policy that would limit payday lending competition in an already highly regulated market does not help the customer," Gibson said.

Since local municipal governments can't regulate interest rates or loan terms, cities such as Orem, Sandy and West Valley set a cap on how many deferred-deposit loan stores can operate within the cities' boundaries. They also set buffer zones to keep payday lenders from clustering. Sandy and South Jordan, for example, forbid payday lenders from setting up shop within one mile of each other.

Deferred-deposit loan stores typically give two-week loans to people who have poor credit. The annual percentage rate on the loan averages around 500 percent, or about $20 in interest for two weeks on a $100 loan. But people desperate to pay off unexpected bills might not understand how the triple-digit percentage rates work and can quickly find themselves buried in interest, said Glenn Bailey, executive director for Crossroads Urban Center.

"It's legalized loan sharking," he said. "They're getting people who are desperate and get them trapped into a debt cycle ... that makes their situation worse."

Paul Allred, deputy commissioner of Utah Division of Financial Institutions, which regulates the payday lending industry, said he doesn't mind cities setting zoning restrictions on payday lenders so long as they don't overstep their authority. The state of Utah only allows payday lenders to charge interest for 12 weeks and it requires them to disclose their annual percentage rates, as well as all other terms of the loan, to make sure customers understand exactly what they're getting into.

"We tell people to be informed, understand what it is your doing," Allred said. "Don't allow it to become a long-term loan, don't use it like you would your credit card."

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