Finances • Industry calls database plan a "Big Brother" move.
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Rep. Brad Daw, R-Orem, wants to create a state database of people who have high-interest payday loans to prevent them from taking out more than one such loan at a time, and potentially spiraling into debt.
Advocates for the poor love the proposal. A company that provides such databases in other states says it could be done easily and inexpensively. But payday lenders vowed to fight it before the Business and Labor Interim Committee on Wednesday.
"It's a matter of invasion of privacy. My customers don't want a Big Brother government database watching them and preventing loans," said Wendy Gibson, a district manager for Check City, speaking on behalf of the Utah Consumer Loan Association.
Such loans in Utah often charge around 520 percent on an annual basis, or $20 for every $100 loaned for two weeks. Daw says that people defaulting on loans sometimes are pressured to get additional loans to pay off earlier ones, thus spiraling into debt they cannot easily escape.
Daw said he is aware of several cases. He talked of one person with a gambling addiction that "had 13 payday loans out at the same time, and they kept loaning to him." He said another lady told him that when she had five loans out, "They told her that because she had so many loans out they could only loan her another $100. They didn't stop loaning her money, though."
Daw unsuccessfully pushed a similar bill in the legislative session earlier this year. But he approached the committee on Wednesday to say he had refined his idea and said that passing such a database law might finally end annual battles over payday loans. He said after Florida created the first such database a decade ago, it worked well enough that its Legislature has had no other payday loan bills.
Mike Hanna with Veritec Solutions, which operates such databases in several states, told the committee that while payday lenders opposed databases in most states, the industry has been able to function with them and the database helped to decrease the number of money-losing loans that they must write off.
Hanna said most states finance databases by charging about 50 cents per loan processed, and allow passing that onto borrowers. He said databases are a good middle ground between opponents who want to kill the industry and the industry that wants no changes.
Art Sutherland, spokesman for the Coalition of Religious Communities, which has long opposed payday loans as debt traps for the poor, said, "We like the idea and have sought it for years. It could help stop loans to people who cannot afford them."
Gibson said payday lenders have already supported new laws in recent years to protect borrowers, and a database is not needed. Some of those changes include allowing people in default to seek a one-time per year 60-day, cost-free extension to pay their loans in four payments.