After arguments about whether it was going too far or not far enough, the Utah Senate gave a preliminary nod Wednesday to a payday reform bill that grew out of scandals involving the industry and former Utah Attorney General John Swallow.
The Senate supported HB127 on a 26-0 preliminary vote. It faces a final vote, probably later this week, before it goes to Gov. Gary Herbert for his signature. The House previously passed the measure 69-4.
The bill is sponsored by Rep. Jim Dunnigan, R-Taylorsville, chairman of the House Special Investigative Committee. That bipartisan panel found that 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, for sponsoring previous reform legislation.
The industry also quietly gave Swallow hundreds of thousands of dollars in "dark money" donations he used to defeat his primary election opponent, Republican Sean Reyes, who eventually replaced Swallow when the latter resigned.
"There have been concerns voiced by the lending industry. They are not excited about this legislation," said Sen. Curt Bramble, R-Provo, the Senate sponsor. "But these are some needed reforms that should have some positive impact."
Sen. Jim Dabakis, D-Salt Lake City, said that while the "payday industry may think it goes too far … I have questions about whether it goes far enough." He noted the industry has reported that some payday loans in Utah charge up to 1,580 percent annual interest. "That’s morally reprehensible," Dabakis said, calling for limits on interest.
Sen. Mark Madsen, R-Saratoga Springs, backed the bill, but offered some defense of the industry and urged his colleagues to go no further. "If we drive this into the black market, as bad as the interest rates may appear, I don’t think they are out breaking kneecaps."
Payday loans currently charge an average of 474 percent annual interest in Utah. The loans are usually made for two weeks initially, but can be renewed or "rolled over" for up to 10 weeks, after which no more interest may be collected.
Dunnigan has said lenders’ threats of suing borrowers for default or threatening to deposit checks that borrowers left as collateral — which would result in bounced-check fees — often led borrowers to take out more payday loans from other lenders to pay off earlier loans.
The bill would give borrowers 60 days after reaching the 10-week limit to pay off the debt without lenders taking any further action against them.
"This ends that cycle of debt," Bramble said.
The bill also would require lenders to file any default lawsuits in places borrowers live or obtained the loan. Many lenders now make customers waive that right to obtain loans, 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 loans and rollovers. And it 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 has said advocates assert that default rates are high while the industry insists they are low, and the required data should show which is true.
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