A study indicates that they cost an average of 652% annual interest. Only Texas is higher.
Utah consumers now face the nation’s second highest rate for payday loans: 652% annual interest, according to a new study.
The only state where the average rate is higher is Texas at 664%, while Utah’s rate is on par with neighbors Nevada and Idaho, according to the nonprofit. Center for Responsible Lending (LCR).
Charla Rios, a researcher at CRL, said the reason for Utah’s high rates is that there is no cap on the interest that lenders can charge. She found that in most states, their average payday loan rates basically match their interest limit, but the sky is the limit in Utah.
Utah once had such an interest rate cap, but it was removed in the 1980s. This was seen as one of the reasons for the rise of payday loan and high interest securities companies. in the state.
“Utah could consider putting in protections or just a cap… that would effectively limit payday lending in the state,” she said.
Rios noted that 17 states and the District of Columbia have an interest limited to no more than 36% APR – and the Illinois legislature has just passed such a bill that awaits its governor’s eventual signature. She said the caps correspond to the 36% limit that federal law places on loans to members of the military, and her group calls on all states to consider and adopt them.
“We know from research – and these rates themselves tell the story – that they [payday loans] are not a lifeline. They are drowning people in a sea of debt, ”she said.
The CRL calculated typical payday loan rates in each state by looking at how much the country’s five largest payday lenders would charge on a $ 300 loan for 14 days.
The 652% interest rate is above the 554% average found here last year in a report from the Utah Department of Financial Institutions, which looked at the rates charged by all of the state’s payday lenders, not just the top five. He noted that at 554%, borrowing $ 100 for a week costs $ 10.63.
The same state report said 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 the maximum 10 weeks allowed on a loan at that rate would cost more than three times the amount borrowed ($ 320 versus $ 100).
“We cannot look away from the damage predatory loans are doing to people who are literally fighting for their survival,” especially during the pandemic, Rios said. “Payday borrowers are forced to file for bankruptcy at higher rates than people in similar financial situations. … We must continue to push for reform until all American families are protected.
CRL is also calling on the Biden administration and Congress to shut down another program – involving certain Utah banks – that Rios says is being used to bypass interest caps in states where they exist. CRL says revisions to the rules by the Trump administration allowed them.
She calls them “rent-a-bank” programs, where payday lenders solicit, structure, and collect loans that charge up to 222% annual interest – but partner banks in states such as Utah technically issue or hold the loans to escape ceilings elsewhere.
“Utah is home to a lot of these banks that we see engaging with other high cost lenders to provide this game,” Rios said.
Last year, in testimony to Congress, Consumer groups have attacked bank leasing partnerships with three Utah banks they say are involved: FinWise, Capital Community Bank and TAB Bank.
“The dishonest banks that allow these programs clearly feel comfortable that today’s regulators will turn a blind eye to this abuse of the banking charter,” Lauren Saunders, associate director of the National Consumer Law Center, testified before the House Financial Services Committee last year.
Now Rios said: “We must reverse the dangerous rule … imposed by the OCC [Office of the Comptroller of the Currency] during the previous administration. And we should cap the interest rates of predatory lenders across the country to end the payday loan debt trap for all families. “