Payday loans have few regulations in Utah

Payday loans, and the stores that offer them, have become quite common in the last ten years. Thirty nine states allow some form of payday lending, but the laws regulating the industry vary dramatically from state to state. Most offer short-term loans of relatively small amounts ($100-500) that come with annual interest rates of several hundred percent.

Utah, on the other hand, has no law whatsoever regarding the interest rate that may be charged to payday loan customers. In fact, some stores charging $30 per $100 borrowed on a two week loan have annual interest rates that exceed 900%.

That’s a lot of money, especially for the typical cash advance loan customer who has little cash in the bank with which to repay the borrowed sum.

• In addition to no limits on payday loan interest, here are a few other tidbits of information about how the industry works in Utah:
• There are no regulations regarding the amount of the loan.
• Loans may be rolled over for as long as twelve weeks, among the longest periods in the country. Some states do not permit rollovers at all.

These rules have led to a proliferation of growth in the industry in Utah, where there are nearly 60% more stores per capita than the national average. Utah tends to have somewhat lower wages than surrounding states, making the state’s residents prime candidates for the easily available, expensive loans. They often take advantage of the fact that there’s a store on every corner.

As we have described elsewhere, these loans take advantage of people with financial hardships by charging anywhere from $10 to $35 for a $100 loan, due in two weeks. The problem is that if the borrower can’t spare $100 today, he or she probably can’t spare it in two weeks, either. At that time, they will either have to roll over the loan for an additional fee, or face bounced check charges when the store deposits the check the borrower gave them. Then the lender will tack on a bounced check charge, and so will the bank, effectively increasing the interest rate on the loan to amounts that could exceed 1000% per year.

The banking industry is a powerful lobby in Utah, and numerous attempts to reform the payday loan industry in the past have failed. The reason often given in this conservative state is that legislators want to leave businesses to run themselves. In truth, the laws stay the way they are because the banks contribute heavily to reelection campaigns.

And Utahns aren’t alone in suffering from Utah’s lax lending laws. Cash advance loan Websites on the Internet often use Utah banks to fund their operations, effectively extending the Beehive State’s lax laws elsewhere. As always with cash advance lending, it’s buyer beware.

Copyright © 2005-2007 by Retro Marketing. All rights reserved.