Utah consumers now face the nation’s second-highest typical rate for payday loans: 652% annual interest, a new study says.
The only state where the average rate is higher is Texas at 664%, while Utah’s rate is tied with neighboring Nevada and Idaho, according to the nonprofit Center for Responsible Lending (CRL).
Charla Rios, a researcher at CRL, said the reason for Utah’s high rates is that it has no cap on the interest that lenders may charge. She found that in most states, their average payday loan rates essentially match their cap on interest — but the sky is the limit in Utah.
(Center for Responsible Lending) Map of average payday loan rates nationally from the Center for Responsible Lending.
Utah once had such an interest rate cap, but it was removed in the 1980s. That was seen as one reason for the rise of high-interest payday and title loan companies in the state.
“Utah could consider putting some protections or simply a cap … that would effectively limit payday lending in the state,” she said.
Rios noted that 17 states and the District of Columbia have limited interest to no more than 36% APR — and the Illinois Legislature just passed such a bill that is awaiting possible signature by its governor. She said such caps match the 36% limit that federal law places on loans to members of the military, and her group calls on all states to consider and pass them.
“We know based on research — and these rates themselves tell the story — that they [payday loans] are not a lifeline. They drown people in a sea of debt,” she said.
The CRL figured typical rates for payday loans in each state by looking at how much the nation’s five largest payday lenders would charge there on a $300 loan for 14 days.
The 652% interest rate is higher than the 554% average found here last year in a report by the Utah Department of Financial Institutions, which looked at the rates charged by all payday lenders in the state and not just the largest five. It noted that at the 554% rate, borrowing $100 for a week costs $10.63.
The same state report said the highest rate charged by any Utah payday lender during the last fiscal year was 1,669% APR, or $32 a week on a $100 loan. The interest for the maximum-allowed 10 weeks on a loan at that rate would cost more than three times the amount borrowed ($320 vs. $100).
“We cannot look away from the harm predatory lending is bringing to people who are literally fighting for survival” especially during the pandemic, Rios said. “Payday borrowers are forced to file bankruptcy at higher rates than people in similar financial situations. … We must continue to push for reform until all U.S. families are protected.”
CRL is also calling on the Biden administration and Congress to shut down another scheme — involving some Utah banks — that Rios said is being used to skirt interest caps in states where they exist. CRL says rule revisions by the Trump administration allowed them.
She calls them “rent-a-bank” schemes, where payday lenders solicit, structure and collect on loans that charge up to 222% annual interest — but partner banks in states such as Utah technically issue or hold the loans to evade caps elsewhere.
“Utah is a home to a lot of those banks that we see that are engaging with other high-cost lenders to provide this game,” Rios said.
Last year in congressional testimony, consumer groups attacked the rent-a-bank partnerships along with three Utah banks they say are involved: FinWise, Capital Community Bank and TAB Bank.
“The rogue banks that enable these schemes clearly feel comfortable that today’s regulators will turn a blind eye to this misuse of the bank charter,” Lauren Saunders, associate director of the National Consumer Law Center, testified last year to the House Financial Services Committee.
Now, Rios said, “We must reverse the dangerous … rule pushed out by the OCC [Office of the Comptroller of the Currency] during the previous administration. And we should cap interest rates on predatory lenders across the nation to stop the debt trap of payday lending for all families.”
