Measure voted down, 8-4
Rep. Laura Black sponsored the bill.
Much like neighboring state Arizona, Utah lawmakers have rejected a bill that would have capped interest rates on payday loans.
The House Business and Labor Committee voted on the bill today. If it had passed, lenders would have been limited to charging a 100 percent annual interest rate on payday loans.
Payday loan primer
Payday loans are meant to be a short-term arrangement. Usually borrowers agree to repay the loans within two weeks. Payday lenders generally do not do credit checks, and thus the loans are considered high-risk for the lender.
Average rates in Utah
Currently, the average annual interest on a loan could be up to 250 percent, but that is only if the borrower defaults on a loan for a year. Upfront fees for payday loans are less than 15 percent, and those are the only fees collected if borrowers hold up their end of the agreement.
Defending the vote
Rep. Francis Gibson, R-Mapleton, sees the logic behind forgoing an interest rate cap. Similar caps in other states have driven payday lenders out of the state, reducing options for consumers.
Gibson points out that fees on payday loans often cost consumers less than the fees for bouncing a check. He said he is concerned about what would happen to people without credit if payday loans disappeared.
Shouts from the peanut gallery
Christopher Peterson, a University of Utah law professor who has written a book on what he calls “predatory lending,” drew a strange and dramatic parallel.
“Two-hundred and fifty percent was the average of a New York mafia loan shark loan” in the 1960s, he said.
This comparison makes no logical sense and is clearly just a tactic meant to generate hype. Apparently lawmakers don’t see the connection, either. For several years in a row, Utah has defeated bills aimed at regulating payday loans.
Capping interest rates on payday loans is like treating drug addiction by all known dealers in jail. You can’t reduce demand by cutting off supply. Perhaps if something could be done that would put more liquidity in the hands of working people like no income tax on anyone making $20,000 a year or less…but no, that would be a solution having something to do with the problem.
Capping interest rates on payday loans will not only reduce consumers’ options, but it will absolutely be a stupid move to make amidst one of the greatest recessions we are currently undergoing. That means more people contributing to the unemployment rate that continues to rise. In addition, payday loans are not annual loans and are designed for short term and responsible usage.