Payday and title loan companies offer a way to get money fast – put your car title as collateral and you can get a few hundred dollars. The trap ? The annual percentage rate, or APR, can be extremely high, meaning you end up paying a lot more than what you borrowed.
Utah is home to some of the highest rates in the country, and a new ProPublica report details how some people who fail to make their payments even ended up in jail. Caroline Ballard from KUER spoke to Anjali Tsui, the journalist who revealed the story.
This interview has been edited for length and clarity.
Caroline Ballard: How do these people end up in prison when debtors’ prison has been banned for over a century?
Anjali Tsui: Congress actually banned debtors’ prisons in the United States in 1833. But what I discovered throughout my reporting is that borrowers who fall behind on these high interest loans are routinely arrested. and taken to prison. Technically, they’re arrested because they didn’t show up for a court hearing, but for a lot of people that doesn’t make a difference.
CB: Most of your reporting focuses on the Ogden community. Why has Utah been such a hotbed of payday loans and securities?
TO: Utah has historically had very few laws governing the industry. It is one of six states in the country where there is no interest rate cap governing payday loans.
Utah was one of the first states to abolish its interest rate caps in the 1980s. The idea was to get credit card companies to move to Salt Lake City, but it worked. also paved the way for payday lenders.
I discovered during my reporting that there are 417 payday and title lenders across the state; that’s more than the number of McDonald’s, Subways, 7-Elevens and Burger Kings combined.
[Editor’s Note: According to the Center for Responsible Lending, Utah is tied with Idaho and Nevada for the second highest average payday loan interest rates in the country. Texas has the highest.]
The industry has truly grown exponentially since the 1980s and 1990s, and there are very few regulations to prevent them from offering these triple-digit interest rates to customers.
CB: With triple-digit interest rates and no cap, how much are people actually paying?
TO: One borrower I spoke to – her name is Jessica Albritton – is a single mother with four children. She took out the loan because Christmas was approaching and she needed more money to spend the holidays.
She took out a $ 700 auto title loan, so she put the title attached to her trailer as collateral. This loan carried an annual interest rate of 192%. She ended up having to pay back double the amount she borrowed, so a loan of $ 700 cost her $ 1,400.
She made a few payments, but then really struggled to keep up. The company ended up suing her, and when she couldn’t make it to a hearing, she got a warrant for her arrest.
It has been a nightmare for Jessica. She had several terms and the company also tried to seize her salary. A lot of the people I spoke to were single mothers, veterans, people who are already struggling financially. And it was interesting to me that companies really take advantage of people who are in a very vulnerable position.
CB: How do payday lending and securities lending companies defend themselves?
TO: Payday loan and securities companies say they are doing nothing against the law. They go through the legal process that allows them to legally pursue borrowers in civil court and obtain an arrest warrant against them.
I spoke to the owner of Loans for Less, a company that aggressively sues people in South Ogden, and he said suing people is part of his business model. But he also didn’t like the fact that his clients were being arrested. He seemed to think it was unnecessary. He told me he would try to think twice about this process.
CB: What about the efforts in Utah? What happened when lawmakers tried to fix this problem in the past?
TO: Over the years, there have been various attempts to introduce laws in Utah that would hold back the industry. In 2009, there was a bill that was passed by the legislature that attempted to cap the interest rate at 100% APR. This rule has been blocked.
Other efforts to introduce similar common sense regulation have met with huge opposition. And if I understand correctly, the payday lending and securities lending industries have a number of lobbyists on the Hill who really campaign and make sure these regulations are not on the books.
CB: Have you seen any reform efforts still underway?
AT: Right now, nationally, it’s illegal to give loans to active duty members that are above 35% APR. There is a bill going on in Congress that hopes to introduce that same cap for everyone.