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End predatory lending in Utah

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Most people would not agree to pay 38 percent interest on a used car loan. But it happens often.

Most people would not buy mortgages that include huge balloon payments, nor would they refinance their homes again and again, paying new fees each time. But such things happen a lot.

And they almost always happen to the poor, minorities, the elderly and people who don't speak English well.

The term for this is predatory lending. It has become a huge and growing industry nationwide, operating just below the surface of society and just beyond the reach of most laws. It's a big problem in Utah, as a story on Sunday's Deseret News business pages made clear. So far, about a dozen states have passed laws in an attempt to curb this practice. Utah ought to join that list.

At the moment, the state offers absolutely no protection. If you sign papers to buy a used car in Utah and it breaks down as you drive it away, you have to make the payments and pay for repairs.

You can't take it back, like you would a blouse that doesn't fit, unless the dealer has a kind heart. You can't get out from under a loan that demands a ridiculously high interest rate. There is no grace period. Often, you are penalized for paying off the balance early.

The counter argument, of course, is that lenders operate in a free market. No consumer is forced to borrow money from a particular organization, and lending institutions need ways to ensure they can make money when loaning to someone with a shaky credit history.

Some people, through their own poor choices, are indeed desperate. They may have defaulted time and again, and they present a risk to any lender. But the vulnerable members of society usually present a much smaller risk, and they are easy prey to poorly worded contracts and persuasive sales techniques that are designed to hide the truth. And the victims of these practices always seem to fall into predictable racial categories. Even homeowners in high-income black neighborhoods are twice as likely to be victims as white homeowners in low-income neighborhoods.

This isn't just an issue for bleeding hearts. The Bush administration has made the elimination of predatory lending a priority. U.S. Housing and Urban Development Director Mel Martinez recently announced new federal rules that protect consumers against these practices if they involve loans insured by the Federal Housing Administration.

Utah lawmakers should overcome their reticence and get aboard.

Most lenders don't do this sort of thing. They care about their customers and want them to return. Most borrowers are wise enough to shop around for a good rate, and they have an array of options that include banks, credit unions, 401(k) plans and other avenues. But that's no reason to allow a small group of lenders to prey on people who are vulnerable.