SALT LAKE CITY — A legislative committee has killed a bill that would have required payday lenders to file collection lawsuits in the jurisdiction of the borrower's residence or where the loan originated.
The Senate Business and Labor Committee voted 4-3 Wednesday to reject the bill, which the sponsor, Sen. Ben McAdams, D-Salt Lake, said was intended to correct a practice that denies justice to borrowers.
"I think it was a reasonable request and would go a long way to provide justice to borrowers," said McAdams.
A large number of collection suits are filed in a small claims court in Provo, even when borrowers live or have taken loans elsewhere in the state. An industry representative said her employer Check City files lawsuits in Utah County because that's where the company's headquarters is located. Consumers are notified of the venue on the loan documents that borrowers are required to sign.
If attorneys have to travel to multiple jurisdictions to go to court, it increases the company's cost of doing business and increases the cost of short-term loans, she said.
"We're trying to keep the costs as minimal as possible for our customers," said Wendy Gibson of the Utah Consumer Lending Association.
But supporters of the bill said people who are sued may not have the wherewithal to travel to the jurisdiction where collection lawsuits are filed. Moreover, seniors or people with disabilities may lack transportation or cannot physically make it to court. When they don't attend court, a default judgment is entered against them.
"It's an abusive practice that needs to be reined in," McAdams said.
Sen. John Valentine, R-Orem, said the state judicial code provides adequate protection for borrowers. They can seek a motion to dismiss the action for a lack of jurisdiction.
Moreover, backers of the bill did not adequately demonstrate that venue shopping was occurring, Valentine said.
Linda Hilton, representing the Coalition of Religious Communities, said 78 percent of cases in one justice court in Provo are payday loan collection actions. Yet less than 1 percent of the caseload in Davis County, where there are multiple payday lenders, are collection cases.
Requiring people to travel to a single venue is onerous, she said.
"It is expensive. It is arduous. We don’t feel it gives people a fair chance to be heard," she said.
Hilton said she was "stunned" by the committee's vote.
"The person who had been our biggest supporter for this issue voted no," Hilton said, referring to Valentine.
"He could have voted yes and sent the payday lenders a message. I think we were all stunned by the reversal."