The average interest rate for a payday loan in Utah is 652%, according to the Center for Responsible Lending. On Thursday, Democratic presidential hopeful Sen. Bernie Sanders said that simply doesn’t cut it. “70-year-old Vietnam veterans are being jailed for not being able to keep up,” Sanders said in a scathing tweet.
He and Rep. Alexandria Ocasio-Cortez, who endorsed Sanders, unveiled legislation in May to “combat the predatory lending practices of America’s big banks and protect consumers who are burdened with exorbitant credit-card interest rates,” the legislators said in a news release.
“The reality is that today’s modern-day loan sharks are no longer lurking on street corners breaking kneecaps to collect their payments,” Sanders said. “They wear three-piece suits and work on Wall Street, where they make hundreds of millions in total compensation and head financial institutions like JPMorgan Chase, Citigroup, Bank of America and American Express.”
A payday loan is a "short-term, high cost loan," typically for $500 or less, according to the Consumer Financial Protection Bureau. Utah's payday loan rate isn't even the highest in the nation. It ties with Idaho and Nevada, and the state with the highest payday interest rate is Texas at 661%, the North-Carolina based lending nonprofit reported.
Sanders highlighted Utah’s payday loan rate specifically after a ProPublica report showed the state has “particularly aggressive” debt collection practices, including the frequent threat of arrest and even actual jail time. Cecila Avila, 30, was finishing a shift at Walmart, where she had worked for eight years, in northern Utah when she was handcuffed in front of other employees and patrons after Loans for Less applied to have her wages garnished, the nonprofit news organization reported.
“It was the most embarrassing thing,” she told ProPublica.
The news agency reported that Utah businesses can sue for up to $11,000 in small claims courts and that Utah law professor Christopher Peterson’s review revealed arrest warrants were issued in about 3,100 small claims cases from Sept. 2017 to Sept. 2018. “They’re handcuffing and incarcerating people in order to get money out of them and apply it towards insanely high interest rate loans,” Peterson told ProPublica.
Congress abolished debtors' prisons in 1833, but that hasn't stopped private debt collectors from imprisoning those unable to repay their debts anyway, according to the American Civil Liberties Union.
They do that by suing those in debt and having judges issue arrest warrants when the defendant fails to appear in court, the ACLU reported. Often, those who owe money weren’t even aware they were being sued or needed to go to court, the nonprofit argued. The ACLU investigated more than 1,000 cases in which civil court judges issued arrest warrants to chase fines sometimes as low as $28.
While debtors have been banned for 186 years in the U.S., today debtors are routinely threatened with arrest and sometimes jailed, and the practices are particularly aggressive in Utah. In a legislation summary, Sanders cited a Pew Research Center statistic that the average payday loan customer borrows $375 for five months and pays $520 in fees.
“Under the legislation we are introducing today, we would establish a national usury rate to make sure that no bank or store in America could charge an interest rate higher than 15 percent,” Sanders said in the May 9 release.
In the same press release, Ocasio-Cortez said there is “no justifiable reason that a person—no matter their background—should be charged an interest rate higher than 15 percent.”
“Rates higher than 15 percent are predatory debt traps, designed to keep working families underwater and allow predatory companies to enrich themselves off the misfortune of others,” she added.