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Sixty-four-year-old Patricia Bailey is a self-described addict, but not of drugs or alcohol; she’s addicted to payday loans—easy money for a woman who has oft times been desperate to make ends meet. Despite being hounded by collection agencies and creditors for 10 years, enduring wage garnishments, losing her home and filing for bankruptcy, Bailey says she still feels the urge to take out another payday loan.
“I do still think about them when I am on a temp assignment. I have no meds for my diabetes right now and my car needs a new steering column,” she explains, “but I am clean at this point in my life.”
Recognizing her dependence on payday loans, Bailey is today an advocate for greater regulation of the industry, especially online lenders. She has testified thrice before state legislators and wants to help prevent others from being swept into the “cycle of debt” she has experienced.
Of course not everyone is a critic of the payday lending industry. You might call Rachel Lopez the industry’s poster woman. As a 19-year-old college student, she needed some quick cash to pay for her books and school supplies. She knew her single mom couldn’t afford to help, so, despite the fact that she had a credit card and says she could have used it to pay for her books, she opted instead to take out a payday loan from CheckCity.
That was nine and a half years ago. Today, Lopez is manager of CheckCity’s Orem store. After engaging in several payday loans through the company, Lopez says she wanted to work there. She’s been a store manager for six years now and says she loves helping customers who visit the store for their short-term credit needs.
“The loans helped me out and I know we help people. We really do,” she says.
While some 14 other states have banned payday lenders (also called “short-term lenders” or “deposit lenders”), the industry has found fertile soil in Utah with more than 500 payday lenders. The payday loan industry estimates there were more than one million cash advance transactions in Utah in 2010, but the actual number may be significantly higher. For example, a 2006 study by the Center for Responsible Lending estimated that Utah’s payday lenders had loan volume of nearly 453 million in 2005—with $69 million in costs to Utah families.
One primary reason payday lenders are sprouting all over the Beehive State is the friendly regulatory environment and, most assuredly, the lack of a usury cap. Interest rates that range from 390 to 1,000 percent have brought condemnation from Utah consumer advocate groups.
“In the depression, the mafia’s interest rate was 250 percent,” says Linda Hilton, director of the Coalition of Religious Communities, a group that works on economic social justice. “One effort tried to cap the state’s usury rate at 500 percent, but no one [in the legislature] would touch it. We have tried several times to cap it over the last 12 years.”
Hilton not only criticizes the usurious interest rates, but also complains that borrowers should not be allowed to take out multiple loans on one paycheck. Further, she asserts that the payday loan industry targets low-income people, students and minorities, and says payday lenders deliberately locate their stores in low-income areas, or where students and minorities live. Bailey believes payday lenders target the elderly as well.
Jerry Jaramillo, supervisor of savings and loans and trusts for the Utah Department of Financial Institutions, says the state has been regulating payday lenders since 1999, but “the legislature’s position is that it is up to the individual to decide if that loan, at that interest rate, is in the best judgment of the borrower.” He adds that usury rates in Utah are market driven and based upon “whatever people are willing to pay.”
Utah’s payday lenders describe their customers as ordinary people with middle incomes, usually earning $25,000–$50,000 per year. Wendy Gibson, another CheckCity store manager, says her borrowers are working class people, under the age of 45, with families. “Thirty-two percent are homeowners; 54 percent have major credit cards; 100 percent have steady incomes; 100 percent have checking accounts; more than 90 percent have high school diplomas or better, and over 50 percent have attended some college or have a degree.”
But that’s not how Hilton and others describe payday loan customers. Hilton says they are generally “desperate people in desperate times that will take desperate measures if they are available. It’s not stupid people being stupid. It’s desperate people trying to survive,” she says.