Cecilia Avila was working at her job at Walmart when she was handcuffed and marched out of the store, not for being a hardened criminal, but for being poor.
Avila had borrowed money from Loans for Less, one of those short-term, high-interest lenders, and found herself unable to pay it back. So Loans for Less took her to court and Avila, unable to get time off work, missed the hearing. A judge then issued a warrant for her arrest.
She was hauled in by an armed constable — not a police officer — and booked into jail. She wasn’t the only one, according to remarkable reporting by ProPublica.
“That’s outrageous to me. Absolutely ridiculous,” said state Rep. Brad Daw, R-Orem, who bears the scars of past wars with high-interest lenders. “It is such completely over-the-top behavior. I mean, my gosh.”
Loans for Less pulls this kind of disgraceful stunt thanks to a 2014 Utah law that allows a creditor to claim bail money required if someone misses a court hearing over a debt. So the company will take its delinquent customers to small claims court, get a warrant for those who don’t show up, then use the courts and the threat of being locked up to squeeze customers — a version of debtors prisons that have been outlawed in the United States for more than 185 years.
It is not what the bill’s sponsors intended, said Rep. Lee Perry, the House sponsor of the 2014 legislation, which passed the Legislature with just one vote against it. The bill was presented as applying to construction debts for thousands of dollars. “The bill was done with good intentions,” said Perry, R-Perry.
But that is what it is being used for now. ProPublica identified 17 instances in a 12-month period where a debtor was booked into jail. On top of that, the reporter witnessed a judge issue more than 20 bench warrants at the request of the Loans for Less representative in a single day.
State officials believe this is an isolated practice.
A spokeswoman for the payday lending industry, Wendy Gibson, notes that Loans for Less is not actually a payday lender — it is an installment lender — and not a member of the association representing payday lenders.
“We do not support any business practice that would have a consumer arrested using a bench warrant as a way to sustain their business model,” she said.
A payday loan — or deferred deposit loan — involves the customer giving the lender a post-dated check that can be deposited on the next payday. Installment loans are more open-ended, paid back in smaller chunks over a longer period of time.
More importantly, while some meager regulations are in place for payday lenders, the installment loan industry is the Wild West and, increasingly, companies are offering both under the same roof.
What does that mean? Back in 2016, the Legislature prohibited the practice of essentially rolling over payday loans, taking one to pay the other. But there is nothing to stop a borrower from getting an installment loan to pay off a payday loan.
“Wouldn’t that make our … prohibition pointless?” Rep. Tim Quinn, R-Heber City, asked at an October hearing. “If we can just simply take out a payday loan, then get a personal loan, then a payday, personal, payday, personal, payday? We can do that into perpetuity.”
He’s exactly right. And there’s more.
Payday lenders must register with the Utah Department of Financial Institutions and report some data about the average amount of the loans they give, the percentage that are delinquent and the average interest rate — which is 522.56%.
Installment lenders only have to notify the department they’re making loans. That’s it. An estimated 11,000 installment lenders, ranging drastically in size, have filed that notification with the state.
These loans can be useful for some low-income people. A study by The Pew Charitable Trusts found installment loans tend to have lower interest rates and consume less of a borrower’s income than a lump repayment in a payday loan.
But there has to be some oversight. Daw plans to sponsor another consumer lending bill in the upcoming session, but is figuring out what he might be able to pass.
At the very least, installment lenders should be required to register with the state and provide the same kind of data on the loans they give as payday lenders. And the data required should be expanded to include the total number of loans given in a year, how many customers received loans and the total value of the loans issued — recommendations made by state auditors back in 2016.
Interest rates and fees should be capped. Utah is one of a handful of states that does not prohibit predatory rates.
A database should be created to track when customers are taking multiple loans or extending loans for long periods — a move that would help the industry as much as regulators.
When lenders break the law, fines should be meaningful. In 2017 and 2018, the state issued a total of 29 fines averaging just $335 each — not much of a deterrent, unless they are also being charged 522% interest.
Consumers deserve more transparency, so they know if they’re signing up with a bad actor like Loans for Less, and a state ombudsman should help protect borrower’s rights.
And it should go without saying that bad actors should not be allowed to bog down the court system and lock up customers because the lenders made ill-advised loans.
The people who seek out these high-interest loans don’t do it because they think it’s a Cracker Jack business decision. It’s an act of desperation and that shouldn’t be compounded by predatory loan sharks. And it certainly shouldn’t be allowed to land borrowers like Avila in jail.