The Salt Lake County Council has imposed what is essentially a ban on any new payday lending institutions in the unincorporated county. On Tuesday, the council passed an ordinance that limits payday lending businesses to one per 10,000 county residents. It also requires payday loan shops to be spaced at least 600 feet apart in the unincorporated county.
Under the county's current population, no new payday lending shops can be established. That could change if one of the existing stores closes or the county's population grows to the point that additional locations would be permitted. The County Council's ordinance is similar to density and zoning restrictions in 10 cities in Salt Lake County.
Under current state law, such restrictions appear to be the only means to rein in businesses that charge interest rates as high as 900 percent, although the median is about 521 percent. Industry representatives say payday lenders are lenders of last resort. Many customers do not have access to traditional forms of credit due to poor credit histories. These lenders assume greater risk with this market segment so they need to charge higher interest rates and fees.
Interestingly, the industry has survived under the 36 percent interest cap imposed by Congress on payday lenders who make loans to service members and their families. In Kansas, a credit union has matched the 36 percent interest rate on these types of loans. That credit union limits loans to $500 and offers no additional loans until the previous loan has been retired. People who fail to repay the loan in three months are required to attend credit counseling each time they apply.
Obviously, financial institutions would rather lend to people who have the best credit histories. The beauty of the Kansas credit union model is that it requires far more discipline than storefront lending. More importantly, it has a consumer education component, which many people who frequent payday lenders obviously need.
The best solution to predatory lending would be a market-based solution. Absent that, credit Salt Lake County and cities that have taken some steps to curb the expansion of an industry that charges exorbitant interest rates and traps needy people in financial arrangements that can overwhelm them.