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Can Payday Loan Companies Sue – Al Hartman | The Salt Lake Tribune Quick Loan is a payday lender located at 464 S. 600 East Salt Lake City. The Salt Lake City Council is considering limiting the density of payday lenders.
Herman Diaz of South Salt Lake City took out his first payday loan at about 500 percent annual interest because he needed $300 to repair his car.
Can Payday Loan Companies Sue
In most cases, he borrowed more and larger loans to repay earlier maturities. Some lenders charge interest rates as high as 750%. (The average interest rate on payday loans in Utah last year was 482 percent.) He once took out eight loans at once, trying to buy time to prevent a default.
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Meanwhile, he lagged even further on other bills. Finally, when he couldn’t pay more, two payday lenders — USA Cash Services and Mr. Money — sued him, one seeking $666 and the other $536. With more lawsuits looming, he said lenders are “calling every 15 minutes asking for money. I’m not exaggerating.”
Diaz heard that Utah law allows borrowers to request an interest-free repayment plan, which he sought. “They just said if I didn’t pay, they were going to charge me with fraud.”
Court records show 7,927 Utahns may sympathize with Diaz. That’s how many people were sued by payday lenders last year, according to Salt Lake Tribune research. That’s roughly equivalent to suing every resident of Park City.
The storm of lawsuits comes despite the industry’s claims that the vast majority of customers can easily afford its products. It also likes to point out that Utah law allows borrowers to request a 60-day, interest-free repayment plan if they can’t afford it.
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But the flood of lawsuits “overturns the notion that people can pay back these loans on time without exorbitant penalties and interest,” said state Rep. Brad Dow (R-Orem), who has sponsored several initiatives seeking to reform the system. Industry Bill. .
Dow said he and his allies have been watching the number of payday loan lawsuits for years and said the number of them has remained fairly steady. He said that suggests the Legislature’s reforms in recent years haven’t had much effect in avoiding defaults or trapping people into loans they can’t afford.
Dow’s push for tighter regulations led payday lenders to secretly donate $100,000 to defeat him in 2012 with the help of embattled former Utah Attorney General John Swallow (who died in 2012). re-elected in 2014). It was one of the scandals that led to Swallow’s ouster and led to the indictments against him and former Attorney General Mark Shurtleff.
Going to court • The Tribune electronically searched Utah court records for fiscal year 2015 (July 1, 2014, through June 30, 2015) to find payday lenders registered in Utah targeting borrowers lawsuits filed and at least 7,927 lawsuits identified.
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Wendy Gibson, a spokesperson for the Utah Consumer Lender Association in the payday lending industry, said that number represents only a fraction of the 700,000 payday loans her group estimates were issued in Utah last year. higher than 1%).
“The low number of payday loan lawsuits,” she said, “compared to the large number of successful transactions, highlights how well payday lenders are doing responsible lending.”
But Natalie Martin, a law professor at the University of New Mexico who has published research on payday loans, said that narrative is deceptive.
“Ultimately, most people won’t be able to pay off their loans,” she said. “The industry can create intrigue around this issue by providing statistics on the number of loans that are in default, as opposed to individual customers who are in default. Counting rollovers, many customers have many, many loans…and one of them will eventually default. . ”
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Payday loans are usually offered for an initial period of two weeks, or the next payday. Borrowers typically write a postdated check stating the loan amount and the interest that can be deposited. The loan can be “rolled over” for an additional two weeks to a maximum of 10 weeks — after which interest will no longer accrue, according to Utah law.
Critics say, however, that lenders often threaten to deposit checks — potentially subject to hefty penalties for insufficient funds — or ruin borrowers’ credit or sue them unless they take out other loans to pay off previous loans.
According to an October report from the Utah Department of Financial Institutions, 45, 655 Utahns were unable to pay off their loans within the 10 weeks of deferral available last year. Tribune research now shows 7,927, or about 18 percent of them, have filed lawsuits against them.
Repayment Plans • Why aren’t more people taking advantage of Utah law’s provision that allows borrowers to request a 60-day interest-free repayment plan to avoid lawsuits?
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Gibson said an analysis by the Payday Lenders Association shows that most lawsuits in Utah are against “borrowers who have never made a payment and therefore are not eligible for the moratorium program.” She said the schemes were only available to those who had already paid 10 weeks of interest on the original loan.
By contrast, Martin said, in a 2010 study, “I found that despite the law providing for this no-fee program (our program in New Mexico is similar to yours), lenders strongly discouraged knowing about this free program.” The customer with the interest-free option, they said, the customer will never be able to get another loan, et cetera.”
Martin added, “More importantly, I found that at least in our [New Mexico] market, most lenders did not inform customers of this option, and most customers were not aware of this option, despite the legal requirement” for notification.
Gibson said that in Utah, as required by state law, each borrower receives detailed verbal disclosures about the terms and laws of the loan.
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“Given that going to court is a costly and time-consuming process for lenders and that they want to build lasting relationships with their clients, it is in the best interest of lenders to offer payment arrangements” rather than litigate.
That’s a change from 2009, when a similar study showed nearly all cases were filed in magistrates’ courts. At the time, most payday lenders filed suit in the court closest to their headquarters.
For example, this meant that people in St. George were frequently prosecuted in Orem, so they did not appear to contest the cases against them. The Legislature changed this rule in 2014 to require filing in the jurisdiction where the consumer lives or where the loan is located.
“Payday lenders use judicial courts because they are the most convenient and affordable forum for consumers to appear in court when filing a lawsuit,” said industry spokesman Gibson.
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“It is also much cheaper to file a lawsuit in judicial court than in district court,” Dow noted.
Payday lender lawsuits currently account for the majority of all non-traffic civil cases in 14 courts across the state. Of those, 98.8 percent of civil lawsuits are heard in Clinton Municipal Court, 92.7 percent are heard in Kane County Court, and 85.8 percent are heard in Woods Cross Court.
The Taylorsville Justice Court heard 495 payday loan cases, accounting for 73 percent of all civil cases. Marsha C. Thomas, the court’s presiding judge, said that did not overload the court and was able to keep up with the caseload.
Other courts where payday lender lawsuits account for the majority of civil cases are: South Ogden, Meadville, Vernal, Providence, Sevier County, Orem, Riverdale, North Logan, Davis County and West Jordan.
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New Players • A new breed of high-interest lender has emerged that avoids many of the regulations imposed on true payday lenders, such as no-interest debt repayment plans or changes to customer requirements, a Tribune analysis found. Convenient jurisdiction for filing suit.
These “signature loan” companies have filed more lawsuits than payday lenders, but totals are hard to come by because they fall under the broad category of “consumer lenders” that includes banks, credit unions and even tire shops.
But one signature lending company, Mountain Loan Centers, filed 4, 744 lawsuits last year, which itself exceeds more than half of the total lawsuits filed by all payday lenders in Utah. Nearly all of the company’s lawsuits are filed in Provo District Court near its headquarters.
Mountain Loan Center’s website promotes its signature loans as “better than payday loans. Our loan amounts are bigger! Our interest rates are lower!”
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It’s not technically a payday lender, as it offers unsecured signature loans (no postdated checks required as security) with terms longer than the two weeks most payday loans offer.
Martin said she’s seen a similar situation in New Mexico, where most high-interest lenders have evaded tighter regulations on payday loans by changing their products slightly.
“No matter what law is passed, they will change the product to circumvent it,” she said. “The industry knows how to get around these laws after they are passed. In many cases, the industry creates laws that contain these glaring loopholes. Lawmakers who receive campaign contributions from the industry pass these laws to keep the money flowing.”
Dow said he is considering whether to seek legislation that would subject the companies to the same regulations as payday lenders.
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It is worth noting that
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