Utah lawmakers plan to curb the state’s payday lending industry with a pair of bills that would cap how many of the predatory loans a person could carry at once and create a public database to track the lenders’ activities.
The two laws approach the state’s payday lending problem from both the consumer side and the corporate side. The law aimed at borrowers restricts anyone from having more than two payday loans outstanding at any time and sets caps on both the number (10 per year) and the volume (no more than 25 percent of the borrower’s monthly income at any given time) of the loans that a resident can take out. The law aimed at businesses would set up a database to track all outstanding payday loans in the state — something that Alabama lawmakers have tried, only to have lenders in their state sue to keep their business practices in the shadows.
About 12 million people take out short-term payday loans with astronomical interest rates each year nationwide. The loans suck more than $3 billion per year out of the poorest, most vulnerable communities in America thanks to interest rates that average 339 percent annually. The problem is even worse in Utah. Payday loan interest rates average 473 percent in the state, according to a November report.
The two measures are in the final drafting stages, according to state Rep. Larry Wiley (D). The legislation is modeled on a pair of 2012 bills that led payday lenders to donate heavily, secretly, and illegally to the author’s opponent. State Rep. Brad Daw (R) was the driving force behind the payday lending crackdown two years ago, and the industry gave excessive campaign contributions to a man named John Swallow, who recently resigned as Attorney General of Utah after an investigation revealed the network of shell companies he used to prop up a pay-to-play system of favors for his campaign donors.
Swallow’s resignation is no guarantee that the renewed crackdown effort will succeed, of course, and payday lenders have a long and broad track record of defeating or weakening similar efforts around the country. The industry spends much of the billions it makes each year on political contributions and reaps the benefits of those donations at key moments in the legislative process at both the state and national level. Alabama’s attempt to shed light on payday loans was squashed by lawmakers friendly to the industry, though none of the illegality and corruption uncovered in Utah has been proven. Members of Congress work to advance industry-friendly legislation at the federal level as well. In addition to contributions from the payday lenders themselves, legislators receive encouragement and pressure from gigantic banks that are behind billions of dollars in payday loans each year. The campaign money and the industry’s slipperiness have helped it to either prevent or evade many state-level crackdowns in recent years.
The Consumer Financial Protection Bureau is attempting to change that. The agency has had payday lenders on its list of targets since its inception, and it recently won a multi-million-dollar settlement against a company that had abused more than 14,000 different borrowers in Ohio.