Payday lenders protest potential rate cap

Claiming they're being unfairly targeted and pushed in a direction that undermines profitability, a group of payday lenders and a lobbyist tried to persuade the Salt Lake County Council this week to vote down a resolution encouraging the state Legislature to place new restrictions on the specialty loan business.

Councilwoman Jani Iwamoto crafted a proposal that asks lawmakers to consider a cap of 100 percent annual interest on loans issued by payday lenders.

Wendy Gibson, an employee of Check City and member of the industry group, Utah Consumer Lending Alliance, told the council that the 417 percent annual interest charge on loans issued by her company is fair and appropriate for the services provided.

"The products we offer are a viable option for tens of thousands of your constituents and they save them money," Gibson said. "Many competitive products cost much more than payday loans."

Those competitive products, Gibson said, include things like paying for overdraft fees on credit cards or bounced checks and having to pay to reconnect utilities. If those fees are assessed on an annualized basis, they can amount to eight to 10 times what payday loans cost, Gibson said.

Lobbyist Frank Pignanelli told the council that the resolution would be more fair if caps applied not only to payday lenders but also to fees charged by banks and utilities.

"In the studies we've conducted … the overriding concern of people getting payday loans like this is trying to avoid overdraft fees, utility fees and other costs associated with late payments," he said. "If you're truly going to do this in sincere fashion you just can't single out payday lenders, you're going to have to bring in all the others."

Gibson said the interest charged by her company equates to a fee of about $8 per hundred dollars per week of loan term. State law prohibits lenders from charging interest for more than 12 weeks, so, if borrowers go the full term, they pay about 100 percent interest. She also contends that only about 5 percent of borrowers default on their loan contract, in spite of the principal doubling in three months' time.

However, records indicate in recent years the number of lawsuits filed by payday lenders against customers who've defaulted has swamped small claims courts. An analysis conducted by the Deseret News last year found that some 27,000 Utahns were sued for default between 2005 and 2007. That rate, about 24 lawsuits a day, accounted for 51 percent of all small claims cases on the Wasatch Front.

Gibson said the rate cap being proposed by the council would "effectively put us out of business."

Council Chairman Joe Hatch noted that the Legislature has been hesitant in the past to place new rules on the payday loan industry, one he characterized as among the least regulated financial services businesses. Last year, Rep. Laura Black, D-Sandy, sponsored a bill that, like Iwamoto's proposal, strove to put a 100 percent annual rate cap on payday loans. The bill didn't make it out of a House committee. Hatch said Iwamoto's resolution, which the council passed on a 5-1 vote, was another attempt to push lawmakers to take a closer look at the industry.

"Let's hope the Legislature can figure out where (payday lenders) belong in the chain of services and control the rate of return in a way that makes sense for the whole community," Hatch said.

e-mail: araymond@desnews.com