This is an archived article that was published on sltrib.com in 2016, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.
Utah has been unsuccessful in any attempts to rein in the unfettered interest rates that have made our state a favored playground for payday lending institutions. Our congressional delegation is involved in a similar debate, and at least one member, Rep. Mia Love, is uniquely positioned to make a significant difference in the lives of vulnerable Utahns.
The Consumer Financial Protection Bureau may issue new regulations on the industry in May. But the most important regulation is one the CFPB has no control over, the allowable interest rate. Congress, however, does have the power to set a reasonable rate. Love sits on the Financial Services Committee and, thus, could and should be an important advocate for such legislation.
As we are all too aware, the industry is heavily represented in Utah, including across Love's district, and has helped exacerbate financial chaos for many of our low-income families. The Catholic diocese works with individuals who have told stories of taking out loans to meet basic expenses after losing employment or dealing with unexpected medical issues. With payments to lenders taking up almost half of their income, they quickly spiraled so deeply into debt they were unable to not only repay the loans, but to afford other critical payments such as rent.
The problem may best be understood by the sheer number of small claims court cases filed by the lenders against consumers in our state alone. In Utah County, payday lending defaults represent 70 percent of small claims court cases. Statewide, the cases take up 62 percent of court dockets. With interest rates in Utah averaging 482 percent, it isn't hard to understand how quickly loans turn into court claims.
Payday lenders understand that their customers are rarely in a position to acquire a loan at a more reasonable rate. While the industry provides a service to high-risk individuals, its business model also seems to depend on those individuals never being able to cycle out of debt. The deeper the consumer falls, the more the lender can make. The plan is working well in Utah, where at least 45,000 people were unable to pay back a loan after the 10-week period during which interest may be charged.
Over the years, Utah has enacted a few so-called reforms. These laws have done little to stem the tide of defaults and financial ruin for families. One of the most effective potential laws, limiting interest rates to 36 percent APR, faces stiff opposition from the industry, which claims it cannot function under such a regulation. Yet, it is hard to believe any fiscally responsible industry must charge 482 percent to remain viable.
The diocese recognizes the need for small, non-collateralized, short-term loans for individuals for whom traditional forms of credit are foreclosed. But we also believe those who are locked out of traditional banking sources should not be preyed upon with impunity. Yes, individuals should manage their resources responsibly, save for emergencies and help others in need. We ask our churches and institutions to teach responsible stewardship and assist neighbors in times of crisis. But we also believe lenders, particularly those who have chosen to work with the most financially vulnerable, should extend loans at reasonable interest rates based on ability to repay within the original loan period, taking into account the borrower's income and expenses.
Effective legislation is possible. The diocese does not seek to bankrupt the industry any more than we want to see the industry bankrupt individuals. But we do hope that Love and the rest of our congressional delegation will act with the best interests of our must vulnerable residents as their priority and establish reasonable interest rates on payday loans.
Jean W. Hill is government liaison for the Catholic Diocese of Salt Lake City.