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Utah senators on Monday followed previous action by the House and unanimously voted to close a loophole that critics say payday lenders use to trap borrowers into a hard-to-escape debt spiral.

HB40 by Rep. Brad Daw, R-Orem, is now on its way to the governor for signature.

Utah law has long put a 10-week limit for "rolling over," or extending, these high-interest loans that usually are initially issued for a two-week period. Beyond that limit, interest on the loans no longer may accrue.

But Daw said payday lenders often have worked around that by convincing borrowers to take out entirely new loans, arguing it helps them avoid legal action or ruining their credit.


A recent legislative audit found many "chronic users" of payday loans were rolling over loans and paying interest for more than six months a year.

Daw said the payday industry worked with him to draft the bill, and supports it.

The legislative audit in August found that 32 percent of all payday borrowers are chronic users of the service. Another 14 percent were in default, meaning half of all payday borrowers were swamped with the debt. The audit called for laws to limit access to loans for those who do not use them responsibly.

It continues a string of payday lender reforms in recent years, including requiring that all lenders make an inquiry about a borrower's ability to repay, offer an interest-free extended payment plan at the end of 10 week and report more data to state regulators.