As Megan Pedersen of Midvale struggled with finances, she was tempted constantly by the bright yellow or green awnings of stores advertising instant payday loans. "It seemed like they were on every corner."
She finally decided to try one seven years ago to avoid asking her parents again for money. She says paying off the loan stores' 500-percent-or-so interest is hard, but she still uses them occasionally because they offer a quick, convenient way to handle emergencies.
Pedersen is not just imagining that payday lenders are rampant in Utah. Data show they are.
Industry critics say that may be because Utah's laws are especially friendly to the industry. Lenders, however, say Utah may simply have more needy people than in other states.
Regardless, the lenders' numbers are booming, and debt counselors say that problems from them are, too, especially among the poor and Hispanics. Their neighborhoods also happen to be where payday lenders are most heavily concentrated, although the industry insists it does not specifically target those groups.
Recent growth of payday lenders in Utah has been astronomical. The first store appeared in Utah in 1984. In 1994, 17 were in the Salt Lake area. Now, state-license lists show Utah has 381 payday loan stores and online lenders licensed here.
That means Utah has more payday loan stores than 7-Elevens, McDonald's, Burger Kings and Subway stores combined.
Utah also has a far higher rate of payday lenders per resident than average. States that allow payday lenders average one store per 10,000 residents. Utah averages 1.6 per 10,000 residents.
Morning News analysis shows that 74 percent of Utahns live in a ZIP code with at least one payday lender. (ZIP codes without any payday lenders tend to be either in lightly populated rural areas or in the wealthiest of areas.) Even some unlikely tiny towns such as Midway, Salina, Hyde Park and Grantsville have payday lenders.
Such stores in Utah are scattered among poor, middle-income and high-income areas. That may be unusual. News reports in other states repeatedly say stores there are heavily concentrated in poor areas and virtually nonexistent in rich places. While poorer Utah areas have higher than average numbers of payday lenders, stores here are still found in communities of about every economic ilk.
"Their business is built on being convenient and fast," said Frank Pignanelli, attorney, lobbyist for the industry's Utah Consumer Lending Association and a Morning News political columnist, giving one reason why payday lenders have become the 7-Elevens of the financial world and have located seemingly everywhere to offer quick service at a higher price. Not surprisingly, many are open late, even until midnight. A few are now open 24 hours a day, seven days a week.
The payday loan industry's Consumer Credit Research Foundation says surveys show 5 percent of Americans have had a payday loan and 10 percent say they are somewhat or very likely to obtain one in the future.
Why so many?
Industry critics say one reason so many payday lenders may locate here is that few states have friendlier laws for the industry than Utah.
It is among 39 states that explicitly allow such loans. It is among 10 with no cap on interest rates or fees. It is among two with no maximum amounts for such loans. Utah has among the longest limits for "rolling over" or extending loans at high interest: 12 weeks. Most states ban rollovers.
"They obviously like doing business here with those kind of laws," said Linda Hilton, coordinator of the Coalition of Religious Communities, an advocacy group for the poor.
The Morning News also found that some online lenders offering payday loans nationwide via the Internet are located in Utah, apparently to take advantage of its friendly laws.
For example, Instant Cash Flow (cashthis.net) says as part of its online application form, "Our loans are governed by Utah law. Utah law governing payday loans may differ from the laws of the state where you reside. If you do not want to enter into a loan agreement subject to Utah law, you should apply for this loan at a lender located in the state where you live."
Utah-based online lenders can charge higher rates than would be allowed in most states. For example, Global Pay Day (Cashnet500.com) of Murray charges $30 for a two-week, $100 loan. The annual percentage rate is 782 percent. That is higher than maximum rates allowed by at least 23 of 39 states that explicitly allow payday loans, not to mention the 11 states that have not legalized them but likely do not try to stop such Internet transactions.
Quik Payday, based in Logan, was issued a cease-and-desist advisory a few years ago by Colorado's consumer credit regulator for offering Internet loans at rates higher than Colorado allows. Quik Payday charged $20 per $100 for loans up to $500. Colorado caps rates at 20 percent for two weeks on the first $300, and 7.5 percent for loans from $300 to $500.
Pignanelli says the large numbers of payday lenders attracted to Utah come not so much for its laws but because of large numbers of people who need their services.
"Our low wages (Utah is near the bottom of per capita income nationally) contribute to financial problems here. That is reflected by the growth in payday lenders," he said.
Hilton agrees on that one point. "Our wages in Utah are very low. We have larger families. And we also have older (college) students with families that a lot of other areas in the country do not. So, families here tend to have higher financial burdens."
The Morning News used computer analysis to see where growth is occurring and where stores are concentrated.
It found that, generally, the poorer the residents are in a specific ZIP code or city, the more payday loan stores they tend to have. Also generally, the more Hispanics in a ZIP code or city, the more payday lenders they have.
Three key exceptions appear, however.
First, areas containing regional shopping malls or big commercialized highway strips (such as Salt Lake County's State Street or Redwood Road) have more payday lenders than expected from demographic data. Areas near Hill Air Force Base also have far more than would be expected. And some cities that legally restrict the numbers of stores have fewer than expected.
Accordingly, areas that are relatively low-income, have large Hispanic populations and have regional shopping areas have the most payday lenders.
For example, among the 62 Utah cities and communities that have at least one payday lender, Midvale has the most per resident: 6.63 per 10,000 residents. South Salt Lake is second with a rate of 6.35 per 10,000 residents. Both rates are four times higher than the state average.
Midvale and South Salt Lake also happen to be near the top of Utah cities with the highest poverty rates and lowest per-person income. They rank No. 2 and 3 among all Utah cities for percentage of Hispanics. And both Midvale and South Salt Lake have heavily commercialized State Street running through them, lined with strip malls and discount stores.
Of course, Midvale is close to Fashion Place Mall, just over the border in Murray. As an example of how large shopping centers seem to attract payday lenders, 18 payday loan shops are on State Street in Murray and Midvale within a mile of Fashion Place. That makes it convenient for borrowers to spend money from their convenient loans.
Do payday lenders specifically target the poor and Hispanics?
"No," Pignanelli said, referring to the 10 chains belonging to the Utah Consumer Lending Association he represents. "But there are some bad apples (elsewhere) in the industry."
He adds that sometimes lenders may locate in areas where populations are poorer or more Hispanic "because it is easier to get a lease there, say along State Street, for example."
He says it would not make sense for the industry to target the poor. "We don't prey on the poor and the homeless, because the poor and homeless don't pay back loans."
But Patty Bailey, who filed bankruptcy after problems with payday loans, is not so sure. In the years she took out such loans, "I saw a lot of people who looked like they had little education. I saw a lot of students. I saw a lot that did not speak English well, not just Hispanics but others. I wonder if they understood what they read."
Almost all the 67 payday loan stores visited by the Morning News had signs advertising that employees spoke Spanish. Some even offered candy from Mexico for Hispanic customers. Some advertised only in Spanish, with no English on their signs.
The Morning News found an unusually large number of payday lenders near Hill Air Force Base. It identified 28 within short distances in Layton and Clearfield.
That means one of every 14 payday lenders in Utah is near Hill Air Force Base.
Actually, that is not surprising. The Pentagon has long expressed concern about payday and other high-interest lenders that flock around bases nationally.
A recent study of 15,000 payday loan stores in 20 states with 109 military bases concluded, "There is irrefutable evidence demonstrating payday lenders are actively and aggressively targeting U.S. military personnel." It was written by Steven Graves of California State University-Northridge and Christopher Peterson of the University of Florida.
Peterson is a Utah native who once worked as a collector for a payday lender here. He said members of the military are a perfect target for payday lenders. "Today's junior military personnel are typically cash-strapped and often find themselves waiting eagerly for the next paycheck," he wrote in a book about high-interest lenders.
The U.S. Government Accountability Office, a research arm of Congress, complained in April that the military is not doing enough to protect employees from payday lenders. In response, the Pentagon launched a program in June to educate military members about their potential dangers. Hill Air Force Base has joined in that effort.
Hill's installation commander, Col. Sharon K.G. Dunbar, said, "We owe it to our airmen to educate them on the best avenues of becoming financially responsible and secure. I would hope that payday lenders would feel the same sense of obligation, particularly given the sacrifices military members make on their behalf every day."
Pignanelli says the industry does not specifically target the military. He said it also goes to extra lengths to help any military members who have problems with loans. "For example, one of the chains here forgave loans, principal and interest, to anyone who was sent to Iraq," he said.
Morning News analysis found that some cities do not have as many payday lenders as would be expected from their poverty and Hispanic levels because they have legally restricted the numbers of payday lenders they allow. But enterprising lenders tend to set up shop just across the border.
"We call it the border effect," Hilton said.
West Valley City was apparently the first to adopt an ordinance locally. Its version allows only one payday lender for every 10,000 residents. It already had far more than that number but allowed existing stores to continue. But the ordinance prevents construction of more, or replacement of any that close.
"They were just popping up everywhere," said City Council member Margaret Peterson, mother of law professor Peterson.
Margaret Peterson says she pushed an ordinance to restrict numbers in part because "of the victimization of people seen by my son. . . . I also have a friend and a co-worker who were also caught up in it."
Also, she says West Valley merchants requested help saying the heavy influx of such stores gave some areas a run-down feeling that they worried chased away desirable business.
When West Valley City adopted its ordinance, Hilton says new lenders started popping up just over the border in Taylorsville, often literally across the street from West Valley City.
Taylorsville Mayor Janice Auger says its business owners soon noticed a big influx and called city officials because they were worried, too.
As Hilton said about worries expressed in many cities, "Whenever you get payday lenders, they tend to attract pawnshops, dollar shops, thrift stores and lingerie stores. Once you have them in a certain area, it's hard to get a bookstore, a pet store or a Chinese restaurant."
Auger says her city also found payday lenders attracted a high number of police calls, costing the city extra money. She says many were in response to calls about passing bad checks, and some were for drug deals made by borrowers who had just obtained loans.
Also, she said, "Taking off my mayor's hat, I was a public
accountant for 35 years. I am very offended by their tactics and what it costs people."
Taylorsville adopted an ordinance similar to West Valley City. Since then, some new payday loan stores have popped up literally across the street from both cities in the neighboring unincorporated community of Kearns.
Hilton says her advocacy group has been attempting to persuade the county and cities with large numbers of payday lenders to similarly restrict the number of stores, and to do so in a way that would not merely chase them from just over one border to another.
As the number of payday lenders has grown, credit counselors and others say problems caused by them have increased, too.
Don Hester, co-owner of the Debt Free Consumer counseling service in Provo, says that when he tabulated data about his clients, he found: "The percentage of people trapped by payday loans increases about 400 percent per year."
Different credit counselors report different levels of problems with payday lenders, but all say it tends to be serious.
Preston Cochrane, executive director of AAA Fair Credit Foundation, says the percentage of people his agency helps who have payday loan problems "is high. It used to be more medium. . . . We have seen it increase, definitely, over the last two years. It's a reflection of how many new offices are opening up. . . . If they have one payday loan, they tend to have three to five."
Hester says at Debt Free Consumer, "Approximately 15 percent of people who seek counseling have one or more payday loans. Few people will have one payday loan. Generally, they will have anywhere from five to 20 loans, all from different payday companies."
Mike Peterson, vice president of the American Credit Foundation, says only about 5 percent of the people counseled by his foundation have payday loan problems, but the problems that are found are usually serious.
"They end up in a vicious cycle. They figure they will go in one time to fix a little emergency, and end up going back month after month," he said.
Michele Morin, a consumer protection lawyer who works with debt counseling, says among people she has helped with bankruptcy, "almost all of them had trouble with payday loans," and also reports seeing increased percentage of people with such problems.
Pignanelli says, however, that 20 years ago before payday lenders appeared in the state "Utah had the highest rate of bankruptcies in the nation. It still has the highest rate of bankruptcies in the nation. So I don't think you can blame people's financial problems here on the (payday loan) industry."
Pignanelli says the booming payday loan industry is making a lot of money. But no one knows exactly how much it is making in Utah. The state does not require lenders to report such things as how many loans they make, how many they must write off or how much profit they make.
Pignanelli says his industry association in Utah also does not compile such information.
But nationally, the industry's Consumer Credit Foundation said 22,000 payday loan stores nationally in 2002 made an estimated 180 million payday loans valued at $45 billion.
That means, on average, each store made 8,182 loans valued at $204,545.
If the 381 payday loan stores in Utah followed that national average, the Utah industry would have had a total of 3.1 million loans valued at $77.9 million.
The Center for Responsible Lending, a group opposing the payday loan industry, estimates the average profit rate per dollar on a payday loan is 34 percent. If that is correct, Utah's 381 payday loan stores would have made a profit in 2002 of $26.5 million.
Cash America, national chain of pawn stores and payday lenders, is publicly traded, so its profits are known and may be an example of what other companies make.
It reported that its revenue increased from $350.5 million in 2002 to $469.5 million in 2004 up 34 percent in two years.
Tuesday: Utah's lack of regulation