A bill in the Utah Legislature this year started out as a plan to stop a high-interest lender that had found a way to jail some borrowers who default on loans and then seize their bail money.
Proposed changes to that bill almost allowed the lender, and some others, to continue the practice — and instead aimed to prevent the state’s payday lenders from starting to do the same thing.
Ironically, those payday lenders — often criticized for charging more than 500% annual interest — had testified that the new loan practice is so predatory that even they oppose it. But they came close to becoming the only ones banned from using it. But because of their protests, it appears that now everyone but collection agencies and lawyers seeking collections may be banned.
Here’s what happened.
After the House had easily passed HB319, the Senate Business and Labor Committee held a hearing on it. Chairman Curtis Bramble, R-Provo, who also is the Senate sponsor of the bill, and Rep. Brad Daw, R-Orem, the bill’s main sponsor, announced that a substitute version of the bill would be introduced later on the Senate floor, but was not yet available to the public.
They said it would limit the ban on jailing debtors and seizing their bail money to just payday lenders — which caught that group by surprise at the hearing.
“We do not use that practice,” Wendy Gibson, spokeswoman for the payday lending industry’s Utah Consumer Lending Association protested. “Limiting that section to just deferred deposit lenders may defeat the purpose of the bill.” The one lender in the state shown to use the practice was not a payday lender, but a title loan company, which puts a lien on a borrower’s car as collateral.
But Bramble said that without the amendment, “there would be significant opposition to the bill” and it would likely be killed. He asked Gibson again if payday lenders opposed it, and she said she needed to confer with others in her organization.
Daw later said in an interview that a senator, whom he declined to name, was insisting that collection agencies should be allowed to use arrest for debt as a tool, and would likely block the bill otherwise.
Daw has battled payday lenders for years, and said that because they have been his primary interest, he agreed to a proposal that at least would stop them from using the arrest-of-debtors approach and to salvage some other reforms in the bill.
Sen. Kirk Cullimore, R-Draper, later acknowledged in a Tribune interview that he was the senator involved. He is an evictions and collections attorney. His firm’s website boasts, “Our aggressive, litigation approach to collections helps our clients attain more of their money they are rightfully owed.”
Because of his experience, he said collection agencies asked him to help them continue to go after bail forfeitures — but he says he’s not aware of any of them actually having people arrested as the one title lender did.
So in discussions with Daw and Bramble, he made his initial proposal that would have affected only payday lenders. “That was based on a misunderstanding of who the abusers were,” he said.
After protests by payday lenders, a different proposal was hammered out that would ban all lenders regulated by the state from using arrests and seizing bail money — but still allow collection agencies and collections lawyers to seize bail money.
“It’s not my favorite solution," Daw said. “You know, it’s sausage. But it’s not a terrible flavor. It does stop the practice among lenders.”
Cullimore said, “My office doesn’t regularly use this tool, and hasn’t for several years. And we never had anybody arrested. But there are some collection firms that still like to have this tool in their back pocket and are not abusing it.”
He explained that after other collection options are exhausted, lawyers may seek a “supplemental order proceeding” ordering a debtor to show up in court to discuss options to remedy their debt. If they fail to show, a bench warrant may be issued against them. They often must show up and pay several hundred dollars in bail to remedy it.
An unusual Utah law passed in 2014 allows creditors to seize that bail money and apply it to what they are owed.
“That’s kind of the last resort,” Cullimore said. “I’m not aware of any collection agencies in the district courts that are using this tool to have people arrested or anything like that.”
That amendment finally worked out is expected to be offered when the Senate considers the bill, likely during the Legislature’s last few days. If it passes, it then would go back to the House for approval of the amendment.
The solution also placates payday lenders enough to support the bill.
“The Utah Consumer Lending Association believes all Utahns should be extended the same safeguards as it relates to bail forfeiture and believes the latest draft of HB319 will provide much needed consumer protection,” Gibson said.
ProPublica last year reported how Loans for Less — which offers auto title and installment loans at triple-digit annual interest rates — obtains warrants against people it was suing for nonpayment of loans.
The borrowers technically were jailed for not responding to a court summons requested by the lender, since it is against the law to jail someone because of an unpaid debt and Congress banned debtors prisons since 1833.
Still, constables appeared and threatened arrest if people could not come up with hundreds of dollars in bail. ProPublica found at least 17 cases in which Utahns had been jailed — anywhere from a few hours to a couple of days.
Daw’s original bill would have simply repealed the 2014 law making it possible for creditors to take bail money posted in civil cases.
HB319 also contains a few other reforms for high-interest lenders.
One would close a loophole that some payday lenders use to avoid a requirement that they stop charging interest on their loans after 10 weeks and offer a no-interest extended repayment plan. Some evaded that by persuading borrowers to take out different signature loans just before the 10-week deadline.
Daw’s bill also would lengthen from 10 to 30 days a required window between notifying borrowers that they face legal action and actually taking them to court.
The bill would also require the state to collect much more data annually about payday and other high-interest lenders. That includes how many loans that payday lenders make, the total dollar amount loaned, the number of borrowers who extended loans and the percentage of loans that are not repaid.