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Provo has some good reasons for putting payday lending outlets on a short leash. It's not so different from tightening regulations on dangerous dogs.
Councilwoman Cindy Richards said she's seen a rapid growth of the short-term loan operations in her district. Some are now within blocks of each other. The council may consider capping the number of payday lenders, as is done in about 10 other Utah cities, including Orem. Other cities also prohibit the stores from being within a mile of another one. Any such step would be, as one advocate said, a start.
Utah Valley has no shortage of payday lenders. According to state figures, there are 15 such quick-cash operations in Provo. There are a number of others in Orem, and more in Springville, Spanish Fork, Pleasant Grove and Lindon.
Nor is there a dearth elsewhere in Utah. There are reportedly more payday lending outlets in the Beehive State than there are 7-Elevens, McDonald's, Burger Kings and Wendy's outlets combined.
So these kinds of operations certainly are not being suppressed in Utah. In fact, they seem to be flourishing.
There are good reasons for keeping restrictions tight. Typically, the lenders make loans against an upcoming paycheck. A typical charge is $15 per $100 loaned, for two weeks. That may not sound like much, but such a rate figured annually is 391 percent. If the borrower misses a payment deadline, late fees and collection charges can send the rate spiraling up to 500 percent.
What makes the practice so repellent is that it hits those hardest who are least able to cope: people who earn a meager paycheck, many of whom don't have a lot of education or are in tough financial straits. The problem is, of course, that the loans often turn difficult financial circumstances to catastrophe.
One reason Provo and other cities are in the front lines in this debate is that the state has abdicated its responsibilities. Utah abolished its usury laws years ago. The lenders must file with the state, but there are few other limits.
We generally favor letting businesses do their jobs. But there are limits, and payday lenders are over the line.
The quick-cash services are not without their defenders, who say the loans are not punitive for those who pay them back promptly. But people with reliable means to pay back a high-interest loan seldom if ever take them out. Many who do are working at bare subsistence wages. Advocates for tighter controls say that these debts cause many borrowers much anguish, and even tip some into bankruptcy.
The direct social costs must also be considered. Awhile back, the Utah AARP did some research on just the bigger payday lending outfits. It found that of 17,600 collection cases in small claims court, 7,521 had been brought by the big check-cashing firms.
Smaller payday lenders also take customers to court, so it's reasonable to assume that about half of the small-claims collection cases in Utah involve payday lending disputes.
Think of the time, money and energy the courts spend in going through these cases. Then think of the time, money and energy the borrowers have to spend to defend themselves. Add in the other problems that debt causes to otherwise productive members of society, and it's easy to see why Provo and other cities might be moved to regulate.
Communities should signal their disapproval of such operations when the state refuses to step in. While they have few tools at their disposal, they can at least send a message.
The Legislature could do much more. We urge state lawmakers to tighten up the rules governing these shady payday loan businesses. It can be done. If legislators took an honest look at the few benefits and many costs of payday lending, they'd take action when they gather at the start of 2009. |
