New Utah payday loans data: fishy or proof poor can afford them?

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December 27, 2011

As part of reporting required by a new disclosure law, Utah payday lenders say 99.9 percent of their high-interest loans are paid off before they reach their legal extension limit of 10 weeks — a sign that the loans are affordable and are not traps, as critics allege, to snag the unwary into bleed-them-dry debt.

But critics say those numbers are fishy.

They note that Utah small-claims court records over the past five years show payday lenders sued an average of 11,600 loan defaulters each year. If that truly represents only 0.1 percent of all loans, that would mean payday lenders are making a whopping 11.6 million loans here a year.

“I have a hard time buying that,” said Linda Hilton, a longtime critic of the industry and director of the Coalition of Religious Communities, which advocates for the poor.

Those are not the only controversial numbers in the newly required reporting. Data also show some payday lenders report charging up to 2,294 percent annual interest — or $50 a week on a $100 loan. Most payday loans start out as two-week loans but can be extended for up to 70 days total.

Reports also show the number of payday loan stores in Utah shrunk by 5 percent in 2010 as laws regulating them became a bit tougher and as rough economic times meant high numbers of unemployed people cannot even qualify for such last-ditch loans.

New reporting » In 2010, the Legislature passed a bill requiring payday lenders to provide additional information to regulators about the percentage of loans that are paid off and when. Among those 2010 numbers, which were included in an annual report by the Department of Financial Institutions, are that 99.9 percent of loans are paid off before they reach an extension limit of 10 weeks.

“That matches my experience with my customers and sounds about right. Almost everyone pays off their loans before reaching day 70. That shows we loan to people who can afford them,” said Wendy Gibson, a regional manager for Check City and a spokeswoman for the Utah Consumer Loan Association of payday lenders.

But Hilton says those numbers are hard to believe. She notes a study by her group — and others by the news media — shows payday lenders file an average of 11,600 cases against defaulters a year. It swamps some courts, accounting for 79 percent of all small-claims cases at 4th District Court in Provo, near the headquarters of Check City, the largest Utah-owned payday lender.

“To make their math work, they would have to be making several million loans a year” or 11.6 million of them to be exact, Hilton said — adding she does not believe that. Utah law does not require disclosing publicly how many overall loans are made, just some aggregate percentages.

Jerry Jaramillo, a supervisor at the Utah Department of Financial Institutions, said the reporting requirement for 2010 hit payday lenders partway through the years after the law passed. So their computers may not have been set up to adequately track for the full year how many loans were not paid within 70 days.

“The real test,” he said, “will be what they report next year.”

Debt traps? » Even if such high numbers of loans are paid on time, Hilton said she still sees payday loans as debt traps.

“Many borrowers go to different lenders to get loans to pay off the first loan” to escape court action and its extra costs and penalties or to avoid hurting their credit ratings. “So, yes, the first loan is paid off. But they owe money on another to cover it. It’s like running up a Visa card to pay off MasterCard.”

Rep. Brad Daw, R-Orem, plans legislation that would limit borrowers to one payday loan at a time in the state, and create a database of loans to help enforce it, as is done in several states.

Hilton loves the idea. Gibson said payday lenders oppose it as a violation of privacy of their borrowers.

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Article source: http://www.sltrib.com/sltrib/news/52989268-78/payday-loans-loan-lenders.html.csp

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