Bill to cap payday loan rates dies

Does allowing 100 percent annual interest on a loan sound too high? It actually sounded far too low to Republicans on the House Business and Labor Committee.

On Tuesday, they killed by a straight party-line vote of 8-4 a bill that would have limited payday lenders to charging no more than 100 percent annual interest. A Deseret News survey in 2005 showed they charge a median 521 percent in Utah, or $20 for every $100 they loan for two weeks.

"Two-hundred and fifty percent was the average of a New York mafia loan shark loan" in the 1960s, testified Christopher Peterson, a University of Utah law professor who has written a book on predatory lending. He noted that Utah capped interest on all loans at 36 percent until 1984, when it erased all limits. Payday loans stores have boomed here since.

Rep. Laura Black, D-Salt Lake, sponsored the bill saying too many people are unable to pay off those high-interest loans. So she said they take out more loans to pay off the first one, and quickly spiral into debt they cannot escape. She said Utah is only one of two states with no interest rate caps at all.

Wendy Gibson, a store manager for Check City, said each loan costs $13 to $14 per $100 loaned to generate and process. She said the proposed limit would allow payday lenders to charge only about $3.60 per $100 loaned. "That would put us out of business," she told the committee.

Rep. Michael Morley, R-Spanish Fork, said such fees seem reasonable, and converting fees into annualized interest rates as required by current law "is ridiculous."

Rep. Francis Gibson, R-Mapleton, said payday loans may cost consumers less than the fees for bouncing a check, and worried what would happen to people without credit if payday loans disappeared.

Peterson said studies show payday loans often lead to more bounced checks as payday lenders try to cash postdated checks left as security for loans.

Linda Hilton, director of the Coalition of Religious Communities, a watchdog group for the poor, said 13 states have outlawed payday loans, and noted that studies showed most of the people in them who had once used payday loans switched to using savings or credit cards, and many went to family or churches for financial help.

The committee voted down the bill with little debate, and only Democrats voted for it. Bills to more tightly regulate payday loans are floated almost every year, but fail. That comes as the payday loan industry gave at least $91,000 to state candidates and parties last year — including giving directly to about one of every four legislators who stood for election.

Black said she may try a similar bill again next year. "If nothing else, if this makes the public more aware of the risk of these loans, then it is worth it," she said.

E-MAIL: lee@desnews.com