New Report Shows Utah Payday Loan Storefronts Are Closing
By Lindsay Frankel
A quarter of Utah payday loan stores in have shut down over the last three years, according to a new state report. In order to boost business, many Utah payday loans businesses have decreased their annual percentage rates, but APRs are still too high for most residents to afford. It cost an average of $10.02 to borrow $100 for just seven days in 2018, which equates to an APR greater than 522 percent. That was only a slight decrease from 2017, when the average APR exceeded 527 percent.
And some payday lenders charge even more than that. Last year, the highest APR was a whopping 2,607 percent. That’s a $50 fee charged on a $100 loan.
Borrowers have been turning to payday loans less frequently in part because of a robust economy.
That’s good news for vulnerable populations, such as people of color and those living on low incomes, since these communities are more frequently targeted by payday loan firms and are also more likely to lack the resources to free themselves of debt.
Stricter regulations have also threatened reduced profitability for payday lenders. Several new rules were introduced by Rep. Brad Daw, R-Orem, whose career has been impacted by the payday lending industry’s scandals in the past. Through shell groups established by former Attorney General John Swallow, payday lenders were able to fund negative ads that swayed public opinion of Daw. “If we’ve chased some of the worst actors out of the state, hallelujah, I couldn’t be happier,” said Daw of the reforms.
Those changes have included a ban on charging interest after ten weeks, restrictions on default lawsuits, and a new requirement that payday lenders can’t issue borrowers new loans to help them pay off previous ones.
These reforms made it harder to for payday lenders to thrive, since their business model relies on borrowers who take out repeated loans. Bill Tibbitts, director of advocacy group Utah Coalition of Religious Communities, said the regulations “chased out the worst players,” who profited from borrowers’ inability to pay back their loans on time. Likely as a result, the number of 10-week loan renewals dropped 42 percent last year. And default lawsuits were down 60 percent as well.
But even as the industry suffers, the regulations aren’t enough to keep the most indigent Utahans from falling into debt traps, a legislative audit found. Daw requested a review that recently proclaimed, “The state’s new payday loan laws are not wholly effective at preventing borrowers from using payday loans in a frequent and sustained manner that puts them at risk.”
Daw said his goal is not to close down the industry entirely; 15 states have banned payday loans altogether. But stricter oversight may be required to put a stop to chronic payday loan borrowing. “New regulations have not been preventing overuse of payday loans,” auditors recently reported.