Payday loan stores dodge interest cap
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"Payday loan" stores dodged a legislative bullet Tuesday that would have limited them to charging a mere 8 percent annual interest to extend their short-term loans — instead of the 521 percent median annual interest that they now charge.
Rep. Dave Hogue, R-Riverton, said he had to jettison the proposed interest rate cap to salvage other reforms he is seeking — or they would be torpedoed together.
"I don't think that (interest rate cap) would ever pass this Legislature. And I don't think that would be acceptable to the financial industry because it would be a beginning of going back to usury" caps that the Legislature erased in the 1980s, Hogue told the House Business and Labor Committee.
The mainstream financial industry has long lobbied against imposing any caps on interest rates — even in the payday loan industry where a Deseret Morning News series in November found the median rate charged in Utah is 521 percent. In contrast, the 1960s Mafia charged only 250 percent.
The overall financial industry — which provides about $1 of every $8 of campaign donations raised by Utah legislators — has argued that putting caps on payday loans could lead to caps on other loans from mortgages to credit cards. It also has said any caps could scare large lending companies out of Utah along with the jobs they provide.
Payday loans are usually made in amounts between $100 and $1,000 for two weeks or until the customer's next payday. In Utah, payday lenders charge a median of $20 per $100 loan for those two-week loans, which is 521 percent annual interest.
Hogue's bill still would have allowed unlimited interest on the initial loan. But if customers sought to extend it because they could not pay it off, Hogue's initial proposal would have allowed only 8 percent interest for the extension period.
Utah law does not allow extending payday loans for more than 12 weeks, but some lenders work around that by persuading customers to take out "new" loans to pay off the initial extended one. That helps them to delay possible default penalties.
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