As part of the new reporting requirements for Utah payday lenders, new data was released at the end of November that many in the financial services industry are finding surprising. Statistics on loan default and pay-back rates show that 99% of payday loans made are paid off before they reach the 10 week limit mandated by new regulation. Many in the industry are now pointing to this number as a solid indication that these types of loans are affordable by the majority of consumers using them and don’t contain hidden traps to keep the consumer in perpetual debt.
Of course, not all agree. Contradictory numbers form Utah small claims courts show an lenders sued an average of 11,000 consumers who’s loans defaulted over the past 5 years. Extrapolating those numbers out, for that to be just 1% of payday loans issued over a 5 year period, lenders would have to have made over 11 million loans in that time period.
Additional numbers in the released report show that brick & mortar payday loan stores in Utah shrunk by 5% in 2010. Many are pointing to the new regulations as a cause of this decline, while others suggest hard economic times have made it difficult for lenders to secure the equity needed to give out short term loans.
This information all stems from a 2010 bill passed by the Utah state legislature requiring lenders to provide more information to state officials on the loans they give out. The requirements include the rate of default, loan payback, average interest rates, loan time frame, and loan extension rates. Again detractors of short term loans suggest these are incomplete figures as the bill did not go into effect until part way through 2010, limiting the data that was collected for that year and generating a skewed picture. They also suggest that some consumers will go to a second loan company to pay off a previous payday loan, which would not show in the mandated reporting and skew the results of the data.
New legislation is up in the state legislature now that would limit consumers to one payday loan at a time and a database of existing loans that could help lenders and regulators enforce this legislation. While some consumer groups support this legislation, others suggest a system such as this would have wide ranging privacy issues for consumers.