Utah representative proposes bill to prevent payday lenders from taking money from borrowers – ProPublica
A Utah lawmaker has proposed a bill to prevent high-interest lenders from seizing surety money from borrowers who don’t repay their loans. The bill, introduced in the state House of Representatives this week, came in response to an investigation by ProPublica in December. The article found that payday lenders and other high-interest loan companies routinely sue borrowers in Utah small claims courts and take bail money from those arrested, and sometimes jailed, for missing a hearing.
Rep. Brad Daw, a Republican, who drafted the new bill, said he was “appalled” after reading the article. “It smacks of debtors prison,” he said. “People were outraged. “
Prisons for debtors were banned by Congress in 1833. But the ProPublica article showed that in Utah, debtors can still be arrested for failing to attend hearings requested by creditors. Utah has provided a favorable regulatory environment for high interest lenders. It is one of six states where there is no interest rate cap governing payday loans. Last year, on average, Utah payday lenders charged annual percentage rates of 652%. The article showed how, in Utah, such rates often trap borrowers in a cycle of debt.
High-interest lenders dominate the state’s small claims courts, filing 66% of all cases between September 2017 and September 2018, according to an analysis by Christopher Peterson, professor of law at the University of Utah, and David McNeill, Legal Data Consultant. Once the judgment is rendered, businesses can seize borrowers’ paychecks and seize their assets.
Arrest warrants are issued in thousands of cases each year. ProPublica reviewed a sample of court records and identified at least 17 people who were jailed over the 12 months.
Daw’s proposal seeks to overturn a state law that has strongly prompted companies to seek arrest warrants against low-income borrowers. In 2014, the Utah Legislature passed a law allowing creditors to get a bond posted in a civil case. Since then, the bond money provided by the borrowers has been routinely transferred from the courts to the lenders.
Reports from ProPublica have revealed that many low-income borrowers do not have the funds to pay the bond. They borrow from friends, family, and surety companies, and they even take out new payday loans to avoid incarceration for their debts. If Daw’s bill is successful, the bond money collected will go back to the defendant.
Daw has run up against the industry in the past. The payday industry launched a clandestine campaign to overthrow it in 2012 after proposing a bill asking the state to track every loan issued and to prevent lenders from issuing more than one loan per consumer. The industry has inundated its constituents with direct mail. Daw lost his seat in 2012 but was re-elected in 2014.
Daw said things were different this time. He met the payday loan industry when drafting the bill and maintains that he got their support. “They saw the writing on the wall,” said Daw, “so they negotiated the best deal they could.” (The Utah Consumer Lending Association, the industry’s trade group in the state, did not immediately return a request for comment.)
The bill also includes several other changes to laws governing high interest lenders. For example, creditors will be asked to give borrowers at least 30 days’ notice before taking legal action, instead of the current 10 day notice. Payday lenders will be asked to provide annual updates to the Utah Department of Financial Institutions on the number of loans granted, the number of borrowers who receive a loan, and the percentage of loans that result in default. However, the bill provides that this information must be destroyed within two years of its collection.
Peterson, director of financial services for the Consumer Federation of America and former special adviser to the Consumer Financial Protection Bureau, called the bill a “modest positive step” that “removes the financial incentive to transfer the money from the bond.” .
But he said the reform does not go far enough. It doesn’t crack down on predatory triple-digit interest rate lending, and companies will still be able to sue borrowers in court, garnish wages, repossess cars and jail them. “I suspect the payday loan industry is supporting this because it will give them a bit of a PR break while they continue to take advantage of troubled and insolvent Utahans,” he said.
Lisa Stifler, director of state policy at the Center for Responsible Lending, a nonprofit research and policy organization, said the mandatory destruction of data was of concern. “If they have to destroy the information, they won’t be able to follow trends,” she said. “It just has the effect of hiding what’s going on in Utah.”