On Tuesday, {The House Business & Labor Committee} killed by a straight party-line vote of 8-4 a bill that would have limited payday lenders to charging no more than 100 percent annual interest. A Deseret News survey in 2005 showed they charge a median 521 percent in Utah, or $20 for every $100 they loan for two weeks.

That”ll teach us to let newspapers get us excited.

Does a cap of 100 percent annual interest on loans sound high? Payday lenders argue it would be too low for them to make enough money to stay in business.

But Rep. Laura Black, D-Sandy, is pushing such a limit anyway, saying she has seen too many people trapped and financially drained by high-rate payday loans. A 2005 Deseret News survey showed they charge a median 521 percent annual interest in Utah — five times more than the limit she seeks — or $20 for a two-week loan of $100.

The payday loan industry’s Utah Consumer Lending Alliance says competition has driven down the cost of such a loan recently to about $15 for a two-week loan of $100. It says such a loan costs $13.95 to generate. But the proposed 100 percent interest rate cap would allow charging only $3.60 for such a loan.

“You can’t spend $13.95 on a loan and sell it for $3.60 any more than you can spend 30 cents to make a cheeseburger and sell it for a nickle,” a written statement from the industry group said. Its lobbyist, Frank Pignanelli, added, “It would force the industry out of business here.”

The bottom line is that annual percentage rates shouldn’t even be applied to a two-week loan.

Some businesses, however, may get dinged on ratings because they are associated with an industry that the BBB considers unfair to consumers. For instance, Check Cash Advance in Murray has no complaints from consumers, but it has a C-minus rating because of its industry: payday lending, Driggs said.

The Payday Pundit rates the BBB, based on my own subjective criteria, a D-.

Hill called Thursday to limit the interest that payday lenders can charge to just 36 percent annual interest. She also proposed limiting the period that borrowers can “roll over” or extend loans from the current 12 weeks to just four weeks.

“A 36 percent rate is still quite high, but it would restore a modicum of fairness to the system and probably encourage the most unscrupulous lenders to leave the market,” Hill said.

Why don’t these people just say “ban” because that’s what the 36% cap does to the industry.

City leaders are proposing changes to the zoning ordinance that would limit where check-cashing and payday loan companies can operate in the city.

The proposal would require a half mile between such businesses, preventing them from clustering in sections of the city. It also prohibits payday lenders from locating within a half mile of schools, churches and municipal- and state-owned property.

“We’re trying to promote being fiscally responsible citizens,” said Planning Commission Chairman Matthew Wirthlin. “We’re sending mixed messages if (students) walk out of school and see a high-interest check-cashing store where you can get easy money.”

Oh, that’s right, students learn their values from city council members, not family or religion.  

Allred said potential borrowers are told twice the interest rate that they will pay, even when it’s 521 percent.

Payday lenders are extremely clear about what taking out a loan will cost.  They have to be, in many states what they tell borrowers is regulated and must be extremely clear.  For CFSA member companies, according to CFSA’s Best Practices lenders need to show borrowers in writing and on big posters in their stores exactly what the terms are.  Matter of fact, studies CFSA has conducted tells us that consumers choose payday loans because it is very clear.

To recap:

Lenders are up front about the terms of the loan.

Borrowers understand what the loan will cost them.

Borrowers still choose to take out the loan.

Anti-payday lending groups are confused, demand that payday loans be banned because borrowers don’t understand the terms of the loan.