Unregistered Payday Loans in Utah May be Voided

Map of Utah made of money
A new bill, HB459, is circulating through Utah’s House and sent that will require payday lenders to report statistical details about their business to the state. The bill is also requiring that all payday loan lenders be registered with the state in order to legally lend money to citizens of Utah. If a lender is not properly registered, their loans held by borrowers may be deemed void, completely banning the lender from collecting any repayment for the loan.

The ban on collection not only applies to interest, but also to the principal.

Utah, a state where payday loan laws are amongst the most relaxed in the country, is trying to protect its citizens from unregistered online lenders. Payday loans in Utah have no annual percentage rate (APR) cap, and often come with an APR of 520 percent, which is the equivalent of $20 per $100 every two weeks.

Some have been reported to issue loans of APR’s upwards of 2,294 percent.

Rep. Jim Dunnigan, R-Taylorsville, is the sponsor of HB459. He told the Salt Lake Tribune that most payday lenders with physical stores in Utah are properly registered, but some of the shadier, online lenders are not.

Online lenders who try to infiltrate as much of the nation as they can are often criticized of being predatory since payday loans are often associated with “debt traps.” Critics claim that due to their high rates, borrowers often cannot pay off their initial loan, and are forced to take out another just to make the payments on the first. Then they wind up getting “trapped” repeating this process.

According to the representative, HB459 puts teeth in requirements to register and abide by the law.

Indeed prohibiting the collection of even principal is unlike anything other states adhere to when it comes to unregistered payday loan lenders. Typically, unregistered or illegal lenders are entitled to their principal less any interest. Utah’s approach, however, may provide the motivation—and risk—to encourage payday lenders to operate their business legally.