Limit payday lenders

Regular readers of these pages know we're no fans of the payday lending industry. It is inconceivable to us why it is necessary to charge a median 521 percent interest rate in Utah in order for these businesses to maintain their profitability. Customers who can't retire their debt end up rolling one bad loan into another, which hikes up interest costs. When borrowers can't retire that debt, they end up getting sued for default, as 27,000 Utahns did between 2005 and 2007. It's a vicious cycle for people who are already financially vulnerable.

So what's the answer?

Rep. Laura Black, D-Sandy, wants to establish a 100 percent annual interest rate on payday loans in Utah under HB111.

The industry is crying foul, which is hardly surprising considering the number of these lenders along the Wasatch Front — they're more prevalent than convenience stores and leading fast-food chains combined — and the potential for an uptick in lending as the economy sputters.

Industry officials say payday lenders would be forced out of business if the state established a 100 percent ceiling on annual interest rates. This is a little difficult to rationalize when some states have placed caps at 36 percent or less. Congress has likewise imposed a 36 percent limit for military borrowers.

Yet the industry says it would fail under a 100 percent cap on interest. Many borrowers have no access to traditional forms of credit due to poor or nonexistent credit histories. These "lenders of last resort" assume a greater risk by dealing with this clientèle, so they need to charge higher interest rates and fees, officials say.

Black, a freshman legislator, acknowledges that passage of her bill is unlikely given previous, unsuccessful attempts to rein in the industry's practices. It is also an industry that gave at least $91,000 to state candidates and parties last year.

There's obviously a need for more consumer education about the long-term consequences of quick loans. Somehow, municipalities need to address the proliferation of these businesses through zoning regulations to limit their numbers.

Seemingly, though, the best solution ought to come from payday lenders themselves. They should not profit unnecessarily from people already in dire circumstance just because they can.