A scandal can make a big difference in payday lender reform.
Although proposals in recent years faced tough battles and usually were killed by an industry that makes big campaign donations, a reform measure flew through committee Friday after payday lenders had become entangled in scandals leading to the resignation of former Attorney General John Swallow.
The House Business and Labor Committee voted 12-0 to pass HB127, and sent it to the full House.
Even payday lenders did not fight it, although they contended it is not needed. Those lenders charge an average of 474 percent annual interest on their loans in Utah, according to state data.
HB127 is sponsored by Rep. Jim Dunnigan, R-Taylorsville, chairman of the House Special Investigative Committee that found, in return for big donations from payday lenders, Swallow funneled money in hard-to-trace ways to help the industry defeat former Rep. Brad Daw, R-Orem, who sponsored bills to increase regulation.
Also, the industry quietly gave Swallow huge donations he used to defeat his primary election opponent, Sean Reyes, who eventually replaced Swallow when the latter resigned.
The loans, usually for two weeks, currently can be renewed or "rolled over" for up to 10 weeks, after which no more interest may be paid. Dunnigan’s bill would then give borrowers 60 days to pay off the loan before lenders could take any action against them.
He said the threat of lenders submitting collateral checks — causing bounced-check fees for borrowers — or filing court action often leads borrowers to take out other payday loans to pay off earlier ones. He said the change could break that cycle of debt.
The bill also would require lenders to file any default lawsuits where borrowers live or obtained the loan. Dunnigan said many lenders now make borrowers waive that right, and lenders do such things as sue people living in St. George in an Orem court — making cases difficult to defend.
The bill also would require lenders to do at least minimal checking to see if borrowers can afford the loans and rollovers, including looking at pay stubs, doing a credit check or looking at repayment history of previous loans.
It also would require the industry to report to the state how many loans go the full 10 weeks, how many end up in default, and the amounts involved. Dunnigan said advocates now claim that default rates are high while the industry claims it is low, and the data should show what is true.
Tracy Ward, regional manager of QC Holdings, speaking for the Utah Consumer Loan Association of payday lenders, did not oppose the bill, and praised some portions. But, he said, "We feel the needs of consumer protection and access are currently well balanced. Current deferred-deposit customers are overwhelmingly satisfied with the regulations already in place."
He added the industry feels that "overregulation could potentially force consumers to use unregulated, off-shore and online lenders that fail to provide the strong consumer safeguards currently provided" by state regulators.
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