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Payday lenders escape new restriction

Published February 1, 2012 10:57 am

Lawsuits • Bill would have required lenders to file in courts close to defendants.
This is an archived article that was published on sltrib.com in 2012, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.

Payday lenders — one of the largest campaign donors to legislators — escaped a move Wednesday to limit where they can sue delinquent borrowers.

Sen. Ben McAdams, D-Salt Lake City, introduced SB110 because he said payday lenders often file suits in courts that are distant from where borrowers live — such as filing in Provo against St. George residents — in a deliberate attempt "to deny justice to borrowers. … It's an abusive practice that needs to be reined in."

But the Senate Business and Labor Committee voted 4-3 to kill it after payday lenders testified they are trying to hold down costs for borrowers by filing in courts near corporate headquarters. Otherwise, it could "potentially increase costs to all borrowers across the board," testified Wendy Gibson, a Check City regional manager representing the Utah Consumer Lending Alliance of payday lenders.

Linda Hilton, director of the Coalition of Religious Communities, said a study by her group last year found that payday lenders file an average of 11,600 cases against defaulters a year. It swamps some courts, accounting for 79 percent of all small-claims cases at 4th District Court in Provo near the headquarters of Check City.

She said members of her group sat in court in Provo and observed that only Utah County residents ever showed up to contest lawsuits by payday lenders. She said they never saw any defendants from St. George or distant locations come. She noted that if borrowers could afford to travel to court, they could afford to pay off their loans.

Committee Chairman John Valentine, R-Provo, said other provisions of Utah law already allow people to challenge a court venue as unfair, but McAdams said that would require people to make long trips to contest the location. He said his bill would require up front that payday loan suits be filed where borrowers live.

After the vote, Hilton said she believes the heavy campaign contributions made to lawmakers weighed "hugely in the decision." During the 2010 election cycle, payday lenders were the 10th largest political donors among industry groups in the state, contributing $148,000 to Utah politicians. The industry has blocked attempts to restrict its activities in recent years.

Payday lenders often charge 520 percent annual interest on short-term loans, or $20 for every $100 loaned for two weeks. Disclosure forms filed with the state last year showed that some charge up to 2,294 percent annual interest — or $50 a week on a $100 loan. Lenders say rates are high in part because they deal with people with poor credit.