Interest on a typical Utah payday loan rises to 554% APR

Utah’s high-interest payday loan companies say the pandemic is wounding their already ailing industry — where nearly one of every three stores closed over a four-year slump amid tightening regulations. Critics say government coronavirus aid may have reduced the need for such loans.

As surviving loan stores try to endure, they raised their already astronomic rates — from an average 523% annual percent rate a year ago to 554%, according to a new state report. (That is also 20% higher than the average 459% they charged four years ago when their slump began).

At that new average rate, borrowing $100 for just a week costs $10.63.

If a borrower repays that in 10 weeks — the limited term that Utah law allows lenders to charge such high interest on short-term loans — the interest would cost more than the original amount borrowed ($106.30 compared to $100).

Some of the loans in Utah cost far more than that average.

The highest rate charged by a Utah payday lender during the last fiscal year was 1,669% APR, or $32 a week on a $100 loan. The interest for 10 weeks at that rate would cost more than three times the amount borrowed ($320 vs. $100).

In short, buyer beware.

Payday lenders are closing

Among many reforms enacted by lawmakers in recent years was requiring the Utah Department of Financial Institutions to track and report annually some basic information about high-interest lenders, including average rates charged and the highest and lowest rates found. It also tracks the number of high-interest lenders in the state.

(Christopher Cherrington | The Salt Lake Tribune)

For the 2019-2020 fiscal year that ended June 30, the state reported 382 payday loan stores operating in Utah — down 8% from the previous year and down 31% in a four-year span.

“Several national companies have closed locations, either through consolidation or lack of profitability. This could be attributed to the highly competitive and regulated market in which we operate,” especially as Utah tightened regulations in recent years, said Wendy Gibson, spokesperson for the industry’s Utah Consumer Lending Association.

She adds that the pandemic has hurt.

“The recent pandemic and its impact on the economy have significantly affected loan volume in the payday loan industry locally and nationally,” Gibson said. “As a result, we have issued fewer loans and smaller loan amounts.”

Bill Tibbitts, director of the Coalition of Religious Communities, a critic of such loans because he says they hurt the poor, speculates that one reason that demand for the loans is down is because of the generous stimulus and higher unemployment checks that the government provided during the pandemic.

“How many people used their stimulus payments to pay off their payday loans?” he questioned, adding the government aid also may have helped some potential customers avoid the loans in the first place.


Rep. Brad Daw, R-Orem — who enacted a series of reforms in recent year against payday loans, but was defeated for reelection this year — says the tightening rules also may have forced out some of what he says were the industry’s worst actors.

“My experience has made me believe that a lot of the smaller guys were some of the more abusive lenders. They’re the ones going out of business,” he said. “The bigger guys, they’re starting to get enough scrutiny that they’re starting to behave themselves a little bit more.”

Most payday loans are for two weeks, or until a borrower’s next payday. Reformed Utah law now allows renewing them for up to 10 weeks, after which no more interest may be charged.

Among other recent reforms in Utah has been a formal ban on using new loans to pay off old ones (although critics say it still happens amid pressure by lenders); establishing the right of borrowers to rescind loans quickly at no cost; and the requirement for lenders to make available an interest-free long-term repayment program (instead of simply suing for nonpayment, which racks up high penalties plus attorney and court costs).

This year, the Legislature also banned a practice used by Loans for Less that put some of its borrowers in jail for not responding to a summons over nonpayment, unless they could pay hundreds of dollars in bail (which then went to Loans for Less). Even the payday loan industry association testified that that practice was so predatory that it should be outlawed.

More change needed?

A report by the legislative auditor general last year said new regulations still are not preventing chronic use of payday loans — which can serve as a “debt trap” where the poor may not escape the spiraling interest accruals without new loans to cover old ones or eventually filing for bankruptcy.

Auditors reviewing state data found 2,353 borrowers in Utah had each taken out more than 10 payday loans in one year. It found one man had 49 payday loans in the year — and paid $2,854 in interest on a loan balance that averaged $812.

Still, Daw says “it’s a good trend” that state data shows that more payday lenders are closing, are issuing fewer loans for less money, and fewer borrowers are going into default. But he and Tibbitts worry about the interest rates that are now rising, and what it may mean for poor people in tough times.

The increasing rates could be driven by lenders missing out on some lucrative penalties, fees and other charges because because fewer loans are being defaulted upon, Daw said.

Tibbitts said, “We’re in a recession from the pandemic. And we hear the rates are going up. That’s concerning” for borrowers who often are low-income people.

Gibson, with the payday lenders association, says, that despite state findings of higher interest rates, “We are not aware of any lenders that adjusted pricing upward during the pandemic. In fact, we know many Utah lenders have been proactive in response to customers directly affected by the pandemic by reducing payments, delaying payments or setting up special payment plans.”

Debt trap?

Still, Tibbitts said the higher rates found by the state complicates the chances of the poor from escaping such loans. “The first rule is that when you are in a hole, quit digging. But taking out a payday loan always puts you in a deeper hole.”

Gibson disagrees.

“Payday loans give borrowers far better, less expensive options than bank overdrafts, paying a mortgage late, or utility disconnection fees,” she says. “If you bounced a $100 check with an overdraft fee of $39, the APR will calculate to 2,033.57%. ... Our customers are smart; they do the math and select the less expensive option of taking out a payday loan.”

The head of a nonprofit that helps people work out debt with creditors disagrees.

Ellen Billie, executive director of the AAA Fair Credit Foundation, says that when new clients who have payday loans are asked how much interest they think they are paying on them, many will say 30% or 40% — not realizing it is often more than 500%, despite having signed disclosure forms containing that information.

Many of her clients report that they use payday loans because they figure they cannot qualify for other loans, and because payday lenders are friendly. Many borrowers say they need them to buy a car or to repair one, to cover medical bills or to pay rent or catch up on a mortgage.

“They think it’s their only choice. But there are other options,” Billie said. “If they come to us before they’ve taken out a payday loan and they can’t pay rent or mortgage, we have resources to connect them with. There is rental assistance out there for emergencies.”

She said some people take out payday loans to pay medical bills, when working out payments directly with a doctor or hospital would be far cheaper.

Payday loans should nearly always be avoided, Billie said.

“I would never tell someone not [to use one] to feed their children. If they have exhausted every resource possible it may be the best solution for them. But we’ve never seen that. There’s always some resources we can help them with.”

Meanwhile, many states have banned or cracked down on payday loans. Nebraska voters, for example, just approved a voter initiative to limit interest on loans there to 36% APR. Sixteen other states and the District of Columbia previously implemented 36% interest limits.

Similar national legislation has been introduced in Congress. Also, Congress in 2006 capped any loans to active-service military members at 36%.

Beyond rate caps, Arizona, Arkansas, Georgia, Maryland, Massachusetts, New Jersey, New York, North Carolina, New Mexico, Pennsylvania, Vermont, West Virginia ban these types of loans entirely, according to the Consumer Federation of America.