Utah loan sharks block borrowers and it must stop
Cecilia Avila was working at her job at Walmart when she was handcuffed and left the store, not because she was a hardened criminal, but because she was poor.
Avila had borrowed money from Loans for Less, one of those short-term, high-interest lenders, and found herself unable to repay it. So Loans for Less took her to court and Avila, unable to take time off work, missed the hearing. A judge then issued an arrest warrant against him.
She was taken away by an armed police officer – not a police officer – and jailed. She was not the only one, according to a remarkable report from ProPublica.
“It’s scandalous to me. Absolutely ridiculous, ”said State Representative Brad Daw, R-Orem, who bears the scars of past wars with high-interest lenders. “This is such exaggerated behavior. I mean, my God.
Loans for Less takes that kind of shameful blow thanks to a 2014 Utah law that allows a creditor to claim the required bond if someone misses a court hearing for a debt. So the company will take its delinquent clients to small claims court, get a warrant for those who don’t show up, then use the courts and the threat of being locked up to squeeze clients – a version of debtor prisons that have been banned in the United States for over 185 years.
This is not the intention of the bill’s sponsors, said Rep. Lee Perry, the House sponsor of the 2014 legislation, which was passed by the Legislature with just one vote against. The bill was presented as applying to construction debts of several thousand dollars. “The bill was made with good intentions,” Perry said, R-Perry.
But that’s what it’s used for at the moment. ProPublica identified 17 cases over a 12-month period where a debtor was sentenced to prison. On top of that, the reporter saw a judge issue more than 20 arrest warrants at the request of the representative of Loans for Less in a single day.
State officials believe this is an isolated practice.
Payday loan industry spokesperson Wendy Gibson notes that Loans for Less is not actually a payday lender – it is an installment lender – and is not a member of the association. representing payday lenders.
“We do not support any business practice that would arrest a consumer using an arrest warrant as a means to maintain their business model,” she said.
A payday loan – or deferred deposit loan – involves the customer giving the lender a post-dated check that can be deposited the next payday. Installment loans are more open, repaid in smaller installments over a longer period.
More importantly, with meager regulations in place for payday lenders, the installment lending industry is the Wild West and, increasingly, companies are offering both under one roof.
What does it mean? In 2016, the legislature banned the practice of essentially rolling over payday loans, taking one to pay the other. But nothing prevents a borrower from getting an installment loan to pay off a payday loan.
“Wouldn’t that make our… ban unnecessary?” Representative Tim Quinn, R-Heber City, asked at a hearing in October. “If we can just take out a payday loan and then get a personal loan, then a payday, personal, payday, personal, payday?” We can do this in perpetuity.
He is absolutely right. And there’s more.
Payday lenders must register with the Utah Department of Financial Institutions and provide data on the average loan amount they make, the percentage of defaults and the average interest rate, which is 522.56%.
Installment lenders need only notify the ministry that they are making loans. That’s it. An estimated 11,000 installment lenders, varying in size, have filed this notification with the government.
These loans can be useful for some low income people. A study by The Pew Charitable Trusts found that installment loans tend to have lower interest rates and consume less income from a borrower than a lump sum repayment from a payday loan.
But there has to be some oversight. Daw plans to sponsor another consumer loan bill in the next session, but is investigating what he might pass.
At the very least, installment lenders should be required to register with the state and provide the same type of loan data they make as payday lenders. And the data required should be expanded to include the total number of loans granted in a year, the number of clients who received loans, and the total value of loans granted – recommendations made by state auditors in 2016.
Interest rates and fees should be capped. Utah is one of the few states that doesn’t ban predatory rates.
A database should be created to track when clients take out multiple loans or extend loans over long periods – a move that would help the industry as much as regulators.
When lenders break the law, the fines must be significant. In 2017 and 2018, the state imposed a total of 29 fines averaging just $ 335 each, which isn’t much of a deterrent unless they’re also charged 522% interest.
Consumers deserve more transparency, so they know if they are engaging with a bad actor like Loans for Less, and a state ombudsperson should help protect the rights of borrowers.
And it goes without saying that bad actors shouldn’t be allowed to bog down the court system and lock up clients because lenders have made misguided loans.
People who are looking for these high interest loans are not doing it because they think it is Cracker Jack’s business decision. It is an act of desperation and it should not be made worse by predatory loan sharks. And it certainly shouldn’t be allowed to send borrowers like Avila to jail.