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Utah's payday ripoff

A few questions come to mind in the wake of a three-part series this newspaper published on payday loan stores — the companies that dot the Utah landscape and charge interest rates as high as 900 percent for short-term loans. (The last installment of the series is published today.)

Why do state officials not conduct undercover inspections of these businesses? A Deseret Morning News check of 67 such places found that about a quarter of them violate the state's meager laws requiring them to post interest rates and the phone numbers of state regulators. The same visits found that several such businesses also made misleading claims about the loans — claims that could trap people of modest means in a never-ending cycle of loans and interest payments.

Another independent group found an even higher percentage of violations, but state inspectors report finding far fewer. Perhaps this is because they are not undercover.

Why does the state not have a better system in place for punishing payday loan shops that violate state regulations? In Utah, such shops may be shut down for repeated violations, but there are no lesser penalties that depend on the degree of violations.

Most important, why are state lawmakers so reluctant to pass stiffer laws regulating this industry, which now flourishes in Utah because of lax laws? The state seems to have become somewhat of an international center for quick, high-interest loans. As the series noted, some Internet loan agencies are based here, likely because Utah law allows them to charge higher interest rates than would be allowed in most other states.

Utah had caps in place on interest rates until about 20 years ago. Now there are no caps, and the median rate payday lenders charge here is 521 percent annually.

Credit card companies get a lot of blame for high interest rates and for clever advertising that lures people to incur debt far beyond their means. Much of that blame is well-deserved. But credit card interest rates are nowhere near the rates payday loan companies charge. Even though those companies offer only short-term loans, they allow people to extend and refinance to the point where some people end up as slaves to interest that seems never-ending.

Utah has more than its share of such loan companies. Advocates claim they are a natural outgrowth of the state's relatively low wages, but that argument is unconvincing. They are here because the state allows them to be extremely profitable, and they can be particularly enticing to people of low means and low education, and especially to the state's growing Hispanic population.

Surely state lawmakers could apply the types of reasonable restrictions on payday loan companies that exist in other states. And surely the state could do a more thorough job of inspecting how well they follow the law. These companies could still earn reasonable profits without charging rates that would make organized crime blush.