Wednesday, January 30, 2008

It's usury Mark, plain and simple

Shurtleff defends payday loan rates
By Lee Davidson
Deseret Morning News
Published: January 30, 2008

Utah Attorney General Mark Shurtleff said Tuesday that banning "payday loans" could hurt the poor more than it would help them and could force more of them into bankruptcies or repossessions.

But debating against that was University of Utah law professor Christopher Peterson, an expert on predatory lending. He said payday loans are essentially legalized loan sharking that can bury the unwary into deep debt. He said societies for millennia have banned the sort of high interest rates that payday lenders now charge.

The pair faced off in the annual Jefferson B. Fordham Debate at the University of Utah's Quinney College of Law, a series that looks at key current issues. They took different sides of whether states should ban any loan with interest rates over 36 percent — which both agree would put the payday loan industry out of business.

Payday loans are usually given for two weeks to those with poor credit. A Deseret Morning News study in 2005 found the median annual interest on them here was 521 percent, or $20 for a two-week $100 loan. Critics contend the needy often cannot pay them off on time and must take out more loans at the high rates to cover them.

Shurtleff said while that interest may sound high, payday lenders actually spend $14 to $15 per $100 loan to service them, including collection on the risky loans. But Peterson said, "The average interest rate on a New York City Mafia loan syndicate loan was 250 percent (in the 1960s), half the price of a payday loan in Salt Lake City."

Shurtleff said, "I've done a lot of research in this area. And I truly believe in my heart of hearts that the people's good is best served by competition" and allowing payday loans as an option besides such things as bouncing checks or pawning goods.

He added, "It would be immoral to take away from somebody an option ... that allowed them to avoid bankruptcy, repossessions and welfare. That would be immoral: not to give people that opportunity and let them make that choice."

Shurtleff said when he took office, he talked to advocacy groups for the poor who complained about debt pitfalls from payday loans. He said he looked into them and found that the state regulators received few complaints from users.

He said a recent study by staff of the Federal Reserve Bank of New York also concluded that after Georgia and North Carolina banned such loans, former users migrated to costlier alternatives, including bouncing checks (and paying expensive bank fees to cover them), or filing for bankruptcy.

Peterson, who has written books examining predatory lending practices, said that study was flawed and did not control for many variables that could have increased bankruptcies and bounced checks. He said payday loans do hurt the poor.

He said studies have shown that a typical payday loan user spends $793 to pay off a $325 loan by needing to take out more payday loans to pay off the original — at astronomic rates — because they cannot pay it off in the original two weeks.

Compared to the 521 percent median rate on them in Utah, he said most cultures have capped interest at no more than 36 percent. He said, for example, ancient Babylon had interest rate caps of 20 percent on borrowing silver and 33 percent on borrowing grain at a time before money was developed. "Before we figured out what money is, we figured out that we need a 20 percent interest cap."

Peterson said the Roman Empire had a 12 percent cap. The ancient Chinese had a 36 percent cap. The American colonies had caps between 5 and 12 percent. Between 1900 and the late 1970s, most states had usury caps between 18 and 42 percent.

But since then, the median cap among states is 400 percent, and many states, including Utah, have no caps — which led to the rise of payday loans. Nationally, Peterson said, more payday lenders exist now than McDonalds, Burger King, J.C. Penneys and Target stores combined.

"The past 15 years have been a dangerous and radical historical anomaly," Peterson said. "If a 520 percent loan isn't usury, what is?"


bekkieann said...

Outrageous! Shurtleff's actions are suspect indeed. Per my post of Jan 17, '08:

"Shurtleff apparently also took a trip to the Bahamas, wherein "a national association representing payday lending companies paid for his plane ticket. Shurtleff accepted an invitation to give a speech at the group's conference last spring at a luxury resort in the Bahamas." "

"State records show that in the last three years, Utahns have filed 120 complaints against payday lenders, but Shurtleff says, 'There have never been any criminal complaints or allegations filed against a group like that -- and why not let them pay my trip?'"

WHY NOT, INDEED, MARK? Perhaps so you wouldn't be so likely to go to bat for them perhaps?!

Oldenburg said...

So all it takes these days to get a politician to become stalwart defender of an amoral business is to give them a junket trip to the Bahamas?

I would have thought it would take at least a few thousand dollars worth of campaign contributions.

Jason The said...

Shurtleff's ethics are showing.


theorris said...

Zounds, I am continually amazed at the cupidity of Utah politicians.

Rob said...


1 : inordinate desire for wealth : avarice greed

2 : strong desire : lust

Homer said...

You can argue that it's legal, you can say that you're helping the poor while taking their money, and you can advocate for the liberties of loan sharks, but that doesn't make it right.

Our laws provide both the foundation and means of governing our society. As such they reflect our values--the things that are important to us, the things we want our society to be.

What does this sorry issue from the head Utah law guy's office reveal about our values? Freedom and liberty are indeed very empowering, but this kind of freedom allows the strong to exploit the weak and vulnerable.

Do we just say, too bad? You shouldn't be poor? It's your own fault?

Keeping a check on the tendency of the powerful towards tyranny helps balance the whole system and keeps it healthy. Defending, let alone allowing this kind of sick predation of the unfortunate corrupts the system created by the social contract.

These payday lender companies are definitely a special interest in our political system. Unlimited interest leads to unlimited power. Come on, let's be reasonable, Shurtleff. Put a cap on it.

Homer said...


I just looked for the original article on Deseret News and it showed that it was written Feb. 21, 2007.

Good article that really puts into a larger context Shurtleff's junket to the Bahamas.


theorris said...

Forsooth! Thank thee for the definition!

My only emendation would be to say that it is only some Utah politicians who evince cupidity. I would not wish to impugn all Utah politicians with that easily disputable moniker. Evidence aside, some politicos have moral fortitude.

How's that for a $5-word comment for you?

Greg Schulz said...

Maybe it's time to cap usury rats like many other states have done and run the leeches out.

theorris said...

I might note, as well, that Shurtleff is hell-bent on going after the little guy for "Mortgage Fraud." Whatever the hell that means. I smell a rat in all this: basically it means if you don't have all your numbers right when you apply for a loan you could be accused of "mortgage fraud." All-in-all, his sudden interest in the subject is all about protecting Mr. Potter and his bank, not Mr. Fratelli and his house in Potter's field.

Sorry for the old-timey Capraesque references.

Shurtleff has very little interest in the poor he proclaims to be protecting, but is very interesting in crooks with money who are the shady side of the current banking system.


theorris said...

And, pardon for the confusion, he is very interested in supporting the so-called bankers who are really crooks in three-piece suits.

Homer said...

Hey, I appreciate the old-timey stuff. There were some good values taught to us by our grandparents and parents. Things like not taking undue advantage of another's misfortune, thinking about how we treat our neighbor, and knowing when enough was enough.

Nowadays we have upright church-going folk thinking that competition is the name of the game and winning at all costs is a virtue. Taking as much advantage of someone else as the market will bear is not only the way to personal prosperity, but a sign of a winner!

Gees, I sound like some angry old man shaking his fist on the porch, but as I view this through theorris' Capraesque lens, I too am shocked to see our chief law enforcement officer on Potter's side.

To me Potter was always some bitter meanie that everyone had to sort of tolerate on account of their Christian sensibilities but in the end was rendered harmless because everyone worked together to do the right thing.

Now he seems like an American idol. Maybe our elected representatives in our government should work to help mitigate the unpredictable suffering of the unfortunate instead of facilitating the loan sharks. The Potter's of the world always seem to find their margins even without the government's support.

theorris said...

Yup, homer, it is kind of like electing Frank Burns as our President, which is what we've been suffering through for 7 long years.

Homer said...

Since our politicians in this state tend to wear their religious credentials on their sleeves I'm wondering what Shurtleff's position would be if God directed us that usury was a forbidden sin.

He has done it before in the past. Maybe with our increased freedom in this modern age and a less legalistic God, we are being tested to see if we can make the right choices ourselves, rising above petty appeals to legalism and weak self-serving arguments about helping the poor.

Doing the Right thing--that would be a great campaign slogan.

Anonymous said...

The charges on Payday Loans can add up, if someone doesn’t pay on time. Other than that, it’s a good option for someone that doesn’t want to get caught up with credit cards debts. They can also help in a tight situation, its quick, and most places are open longer hours than banks.