Utah residents suffer from the highest payday and auto loan interest rates in the United States. It is one of only six states that does not have an interest-rate cap on such loans. Moreover, despite Congress’ ban on debtors’ prison, more and more residents are finding themselves in jail after defaulting on their loans.
President Obama began drafting federal regulations to govern payday and auto loans while he was in office. Prior to that, these loan companies had never been regulated. The Trump administration has delayed this proposal, resulting in current payday and auto loan rules varying by state.
Many states have banned these loans entirely, but six (including Utah) have left them completely unregulated. Utah’s average annual interest rate is 652 percent with some as high as 2,607 percent. This means that a $700 loan could cost as much as $18,249 at the end of one year.
Although Utah’s unemployment rate is one of the country’s lowest and its population is the nation’s highest percentage of white, middle-class citizens, nonetheless, 25 percent of that population’s household income is less than $39,690 a year.
A Federal Reserve Board study stated that one in four adults could not handle an unexpected $400 expense without having to borrow money or sell something to pay for it.
What civil liberty advocates find most disconcerting is that those who default on their loans many times find themselves in jail because they don’t know court procedure or what their rights are and cannot afford representation that could inform them.
When borrowers default on their loan, a suit is filed in small claims court. These claims make up a large percentage of cases heard in that court. Loans for Less, an auto title and installment loan company in Utah, claims made up 95 percent of all those cases heard in South Ogden in 2018.
Ralph Silverstone, owner of Loans for Less, said court is a necessary function of his business. “At this point, small claims court is in the model. If we didn’t have that avenue, I’ll be honest ... we could be out of business,” he stated.
An analysis of court records between September 2017 and September 2018 showed that payday and auto loan companies had a lower threshold for filing a claim than others, with a median claim being $994, which is defaulted to the loan companies when the defendants fail to show up as they so often do. The loan companies can then place liens and garnish wages of the debtor. If the debtor misses a subsequent meeting to review their assets, a bench warrant is issued for their arrest.
Utah passed a bill in 2014 that allows creditors to seize a defendant’s bail money, and the collections officer receives a commission for the funds they help to recover. So a defendant pays on the principal of his debt every time he makes bail.
Opponents to this practice state that the average consumer only knows that they ended up in jail because of a debt that they owed. From here, many family and friends go to one of these same loan companies for bail, creating a downward spiraling, never-ending crisis. The pen holder in a Loans for Less branch office reads: “If you think nobody cares if you’re alive, try missing a payment.”
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