A bill that would impose additional regulation on payday lenders is headed for Gov. Huntsman's desk.

Payday lenders are those outfits that hand out cash for anticipated paychecks -- checks that a person has not yet received from an employer but expects to get soon. "Loan sharks" may be too harsh a term to apply to these lenders, but not by very far. Too many of these fly under the state's regulatory radar.

Payday loans are generally sought by people on the knife edge of financial survival, people who need cash now and who are forced to pay exorbitantly high fees for the privilege of getting it.

To protect them from usury, two bills have been introduced in the Legislature:

Senate Bill 16, sponsored by Assistant Senate Minority Whip Ed Mayne, was approved by the House this past week 71-0. The West Valley City Democrat's bill (which also passed the Senate unanimously) would levy fines of up to $500 against payday lenders who fail to register with the state. And it would bar lenders from using the state's bad-check law to collect on payday debts.

The second bill, House Bill 329, is awaiting committee assignment. That one, sponsored by Rep. LaWanna Shurtliff, D-Ogden, would require greater disclosure from payday lenders about actual fees and penalties. It also would bar lenders from extending loans to people who are already paying off another payday loan.

Mayne's and Shurtliff's efforts are commendable, but they do not tackle the real problem -- interest rates so high they make the moon dizzy. An interest rate cap is needed.

Twelve states -- Arkansas, Connecticut, Georgia, Maine, Maryland, Massachusetts, New Jersey, New York, North Carolina, Pennsylvania, Vermont and West Virginia -- currently bar payday lenders from charging exorbitant interest rates. Utah does not have a usury law, and interest rates can exceed 500 percent annually, a rate beyond what some criminal loan sharks would charge.

Unfortunately, too many people who seek payday loans don't realize this until it's too late. From their perspective, they seem to be paying 20 percent on a loan until payday. It's a bit stiff, but not entirely unreasonable, especially for an emergency loan that is going to be paid off quickly. But when you annualize the rate, you get a real shock: true rates can be upward of 500 percent.

A further problem arises when a debtor can't pay the money back on payday. Then that interest starts compounding and a rapid spiral into bankruptcy begins.

An effort to cap interest rates in Utah failed last year. Lenders convinced legislators that a cap would make it difficult for them to operate and to provide what they say is a valuable service to Utah's poor. They say that high interest rates are justifiable because their clients often have bad credit and are more likely to default on the loans.

We are not persuaded. This particular "service" to the poor only seems to make the poor even poorer.

Annual percentage rates of 500 percent or more go beyond protecting the lender and step into outright exploitation of people who have no other place to go for help. A 36-percent interest cap would allow payday lenders to protect their financial interests without forcing someone into bankruptcy.

Until the Legislature caps interest rates, Utah's needy will continue to be at risk of exploitation by predatory lenders.

This story appeared in The Daily Herald on page A5.

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