Interest on a typical Utah payday loan consolidation is 554% APR


Utah high-interest payday loan consolidation companies say pandemic is hurting their already struggling industry – where nearly one in three stores have closed in a four-year crisis amid tighter regulations . Critics say government aid for coronaviruses may have reduced the need for such loans.

As the surviving loan stores try to last, they have raised their already astronomical rates – from an average annual rate of 523% a year ago to 554%, according to a new state report. (It’s also 20% more than the average of 459% they were billing four years ago when their crisis started).

At this new average rate, borrowing $ 100 for just one week costs $ 10.63.

If a borrower pays this off in 10 weeks – the limited time 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 against $ 100).

Some of the loans in Utah cost much more than this average payday loan consolidation

The highest rate charged by a Utah payday lender in the last fiscal year was 1669% APR, or $ 32 per week on a $ 100 loan. Interest for 10 weeks at this rate would cost more than three times the amount borrowed ($ 320 versus $ 100).

In short, buyer beware.

Payday lenders close

Among the many reforms passed by lawmakers in recent years, the Utah Department of Financial Institutions was to track and report basic information about high-interest lenders each year, including average rates charged and highest rates. and the lowest 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 which ended June 30, the state reported 382 payday loan stores operating in Utah, down 8% from the previous year and 31% over a four-year period.

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

She adds that the pandemic has hurt.

“The recent pandemic and its impact on the economy have dramatically affected the volume of loans in the payday lending industry at the local and national levels,” Gibson said. “As a result, we issued fewer loans and smaller loan amounts. “

Bill Tibbitts, director of the Coalition of Religious Communities, criticizes these loans because he says they hurt the poor, speculates that one of the reasons the demand for loans is declining is because of the stimulus measures generous and higher unemployment checks that the government provided during the pandemic.

“How many people have used their stimulus payments to pay off their payday loans? He asked, adding that the government aid may also have helped some potential clients avoid loans in the first place.

Reforms

Rep. Brad Daw, R-Orem – who passed a series of reforms last year against payday lending, but was defeated for re-election this year – says the tightening of rules may also have forced some of what ‘he says he is the worst players in the industry.

“My experience has led me to believe that a lot of little guys are some of the most abusive lenders. They are the ones who go bankrupt, ”he said. “The bigger ones, they start to be watched enough to start behaving a little more.”

Most payday loans are for a term of two weeks or until the borrower’s next payday. Reformed Utah law now allows them to be renewed for up to 10 weeks, after which no further interest can be charged.

Other recent reforms in Utah include a formal ban on using new loans to pay off old ones (although critics say this still happens under pressure from lenders); establish the right of borrowers to terminate their loans promptly and without charge; and the requirement for lenders to make available a long-term interest-free repayment program (instead of just suing for non-payment, resulting in high penalties as well as attorney and court fees).

This year, the legislature also banned a practice used by Loans for Less that put some of its borrowers in jail for failing to respond to a summons for non-payment, unless they could pay hundreds of dollars in. bail (which then went to Loans for Less). Even the Payday Loan Industry Association testified that the practice was so predatory it should be banned.

No more change needed?

A report from the legislative auditor general last year said new regulations still don’t prevent chronic use of payday loans – which can serve as a “debt trap” where the poor may not escape skyrocketing interest without new loans to cover old ones or possibly file for bankruptcy.

Auditors looking at state data found that 2,353 borrowers in Utah each took out more than 10 payday loans in a year. He revealed that a man had 49 payday loans during the year – and paid $ 2,854 in interest on a loan balance that averaged $ 812.

Still, Daw says that “it’s a good trend” that state data shows more payday lenders are closing, issuing fewer loans for less money, and fewer borrowers defaulting on their payments. But he and Tibbitts are worried about the current rising interest rates and what that may mean for the poor in tough times.

The rate hike could be due to lenders not collecting certain penalties, fees and other lucrative fees because fewer loans are past due, Daw said.

Tibbitts said: “We are in a recession because of the pandemic. And we hear rates going up. This is of concern ”for borrowers who are often low-income people.

Gibson, with the Association of Payday Lenders, said that despite the state’s findings on higher interest rates, “We are not aware of any lenders that have adjusted their prices up during the pandemic. In fact, we know that many Utah lenders have been proactive in responding to customers directly affected by the pandemic by reducing payments, delaying payments, or implementing special payment plans. “

The debt trap?

Still, Tibbitts said the higher rates found by the state make it harder for the poor to escape such loans. “The first rule is, when you’re in a hole, stop digging. But taking out a payday loan always puts you in a deeper hole. “

Gibson disagrees.

“Payday loans offer borrowers much better and cheaper options than bank overdrafts, late mortgage payments, or utility disconnection fees,” she says. “If you bounced a check for $ 100 with an overdraft fee of $ 39, the APR would calculate 2,033.57%. … Our customers are smart; they do the math and choose the cheapest option of taking out a payday loan.

The head of a nonprofit organization that helps people settle their debts with creditors disagrees.

Ellen Billie, executive director of the AAA Fair Credit Foundation, explains that when new clients who have payday loans are asked how much interest they think they’re paying on them, many will say 30 or 40 percent – not realizing that it This is often over 500%, despite signing disclosure forms containing this information.

Many of its clients report that they use payday loans because they think they cannot qualify for other loans and because payday lenders are friendly. Many borrowers say they need it to buy or fix a car, 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 take out a payday loan and can’t pay their rent or mortgage, we have resources to put them in touch. There is rental assistance for emergencies.

She said some people take payday loans to pay their medical bills, while payments directly with a doctor or hospital would be much cheaper.

Payday loans should almost always be avoided, Billie said.

“I would never tell anyone no [to use one] to feed their children. If they have exhausted all possible resources, this may be the best solution for them. But we’ve never seen that. There are always resources we can help them with.

Meanwhile, many states have banned or cracked down on payday loans. Voters in Nebraska, for example, just approved an election initiative to limit interest on loans to 36% APR. Sixteen other states and the District of Columbia previously had 36% interest limits in place.

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

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


What is a personal loan?

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Millions of Americans are struggling to make ends meet. According to a survey from the First National Bank of Omaha released earlier this year, 49% of American adults expected to live paycheck to paycheck in 2020, and there is no doubt that the pandemic has only make things worse. In July, Pew reported that nearly 12 million Americans rely on payday loans every year.

In a pinch, a payday loan may seem like an easy solution if you’re short on cash. You usually only need proof of income and ID, and you can get a small loan on the spot. But read the fine print and you will see that these loans are loaded with hidden fees and high interest rates because they are unfortunately marketed to people who are in dire straits and have few options to get an affordable loan. from a reputable lender.

Payday loans are considered a form of predatory lending by ACLUand many states have pending legislation to impose interest rate caps and other regulations on how much lenders can charge. More recently, Nebraska passed a law lowering the ceiling on interest rates from 400% to 36%. While 36% is more expensive than the average credit card APR, it’s a big improvement for many borrowers who are struggling to repay these loans.

How payday loans work

Often people go to physical locations to apply for a payday loan in person. To complete an application, you will need to have recent pay stubs that prove your income. Your payday loan can be without collateral, or the lender can use your income as collateral, giving them the right to garnish your wages if you don’t pay them back.

If you have a credit history, the lender will pull your credit report, resulting in a hard pull, and make a decision.

Once you receive your money (usually the same day), you usually have less than 30 days to repay the loan in full, plus finance charges. It’s markedly different from a traditional installment loan, where you pay off the debt over a few months or even years.

The pitfalls of the personal loan

Although payday loans can be a quick way to get the money you need, the interest rates are sky high. Currently, lenders are not required by law to verify that you are able to repay these charges and exorbitant finance charges, let alone the money you have borrowed.

And the consequences if you can’t repay it are serious: fees and charges vary depending on the amount you borrow and where you live. In some unregulated states, you could pay over 500% interest for a short-term loan of a few hundred dollars, which increases over time when you can’t pay off the balance.

Worse, when payday loans are secured by your paycheck, you can open access to give lenders permission to garnish your wages, making it nearly impossible to get ahead.

Alternatives to payday loans

If you can, avoid payday loans and consider low-interest options instead. This may include borrowing money from a family member and paying it back, taking out a personal loan or try to negotiate a payment plan with your debtor.

If neither of these options are viable, you can consider using your credit card, either by simply swiping it or taking a cash advance (which usually carries a fee of around 5% or more). Although credit cards have some of the highest interest rates, they’re still cheaper than what you might pay if you take out a payday loan you can’t afford to pay back.

If you can’t pay off your credit card balance in full, you can still protect your credit score by making minimum payments until you’re in better financial shape.

Editorial note: Any opinions, analyses, criticisms or recommendations expressed in this article are those of Select’s editorial staff alone and have not been reviewed, endorsed or otherwise endorsed by any third party.