Quick cash, but at what cost?

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OGDEN -- Dave North is glib with legal jargon and spends most of his days in the district courts of Northern Utah, but he's not a lawyer, judge or defendant.

North, who showed up at Utah's 2nd District Small Claims Court on Tuesday with a list of names, is a court representative for Money 4 You, a payday lender. The names were of people who had failed to repay their loans on time and had judgments against them.

Of North's 14 names, only one person showed up. Some had managed to pay off their loans before going to court, but the rest received bench warrants with bail set at the cost of the original loan.

"We get negative press all the time," North said. "Somehow, the positive things get outweighed by all the negative things in the media."

The positive things, he said, are that if people are struggling, they can get the money they need, and that most payday-loan customers are satisfied. According to a customer-satisfaction survey conducted by researchers from Syracuse University, 63 percent of payday borrowers are satisfied, compared to 28 percent with credit cards.

"But, it's still a business," he said just before he went into a private room adjacent to the courtroom, to work out a pay garnishment plan with the one debtor who showed up.

In another case, Lori Christensen, of Logan, had paid off the $1,200 she owed in interest on a $300 loan from a different payday lender, but she still showed up just to make sure she wouldn't hear from small claims court again. She got the loan to help her husband pay back child support. Unfortunately, they got a divorce, and she started having grand mal seizures, she said. After months of hospitalization and treatment, she received a bench warrant.

"I would advise against anyone getting a payday loan," she said. "Looking back, I should have just let my ex-husband go to jail."

Stories like Christensen's are anecdotal and don't accurately reflect the payday lending community, said Cort Walker, a spokesman for the Community Financial Services Association of America who also works for Check City, a Provo-based payday lender.

"One of the big misunderstandings is that we prey on the poor," he said. "That's just not true. Our customers are middle-America."

Borrowers

Walker points to Chris Doyle, a Check City customer from South Ogden, as a good example. Doyle has a degree in computer engineering, works for a telecommunications company and earns about $85,000 a year. He is often quoted in Salt Lake City newspapers, extolling the virtues of the high-interest, short-term loans.

"I don't get too many payday loans," Doyle said. "Only about one a month."

Travel is a big part of Doyle's job and his company doesn't reimburse him until two weeks later. Just before a business trip, he will get a loan for $500 to cushion his checking account. If he pays that back within two weeks, he will spend about $80 in interest at Check City. Other lenders in Utah would charge Doyle as much as $105, or an annual percentage rate of 547 percent.

"I don't use credit cards. I got into a lot of trouble with them when I was younger and it took a long time to get out of it," Doyle said in a Standard-Examiner interview in September. "Plus, I don't want to pay that 18 percent interest."

Two weeks later, however, Doyle was reconsidering his options.

"My wife and I talked about it, and I could get a credit card with a $500 limit. If I pay it back within a month, I won't pay any interest at all," he said.

Because of his past, Doyle is still hesitant to get a credit card. One thing that he appreciates about the payday loans are the stiff fees. They keep him in line, he said. Credit cards were so easy that it was hard to control himself.

This kind of behavior is what economists refer to as having a high discount rate, said Clifford Nowell, an associate dean in Weber State University's business and economics department.

"People with a high discount rate value present consumption more than future consumption," he said. "The pleasure they are getting today outweighs the costs they are going to have in the future."

As a group, U.S. military personnel have an extremely high discount rate, according to a 2001 article by John Warner of Clemson University and Saul Pleeter of the Defense Department in The American Economic Review. This might explain why active-duty military personnel are three times more likely than civilians to take out a payday loan, according to the Center for Responsible Lending.

Last year, military families paid more than $80 million in payday loan interest, according to the CRL. On Oct. 2, however, a federal law went into effect that reduces the annual interest rate payday lenders can charge service members from about 500 percent to 36 percent.

Walker said payday loans will no longer be available to airmen at Hill Air Force Base because the cap is so severe that lenders can't make a profit.

"It's a business like any other," he said. "Not all payday lenders are rich."

But some are.

Lenders

Walker's boss Richard Rawle, owns Check City, Loan City, W.W. Lightning Tax Services, Keystone Financial Services, Softwise Inc. and Tosh Inc., which sell payday lending software.

Last year, the Rawle family donated almost $40,000 to political campaigns across the United States. About $18,000 of that went to Rep. Jim Matheson, D-Utah. Just in Utah this year, Tosh Inc., gave almost $10,000 to state representatives, including Rep. Neil Hansen, D-Ogden; Rep. Craig Frank, R-Pleasant Grove; Sen. Dan Eastman, R-Bountiful; Rep. Paul Neuenschwander, R-Bountiful; Rep. Gage Froerer, R-Huntsville; Rep. Kevin Garn, R-Layton, and Sen. Sheldon Killpack, R-Syracuse, according to campaign disclosure forms.

"We support different candidates from a business point of view," said Tracy Rawle, vice-president of Check City. He said the company supported a Utah law that limited the amount of times consumers could extend a loan, but it doesn't support legislation that could cap interest rates in Utah.

Another payday giant, David Dunkley, of Smithfield, owns Direct Financial Solutions, Cash Central and Quik Payday, among others. He has at least two companies that do loans via Internet. In 2006, he made enough money to donate $150,000 to pay for Utah State University's new marching band uniforms. USU President Stan Albrecht honored Dunkley with a plaque during halftime at a USU football game.

"David is rich," Walker said, "but he also has a lot of lawsuits."

Cash Central is part of the Community Financial Services Association of America, which seeks to encourage responsible practices in payday lending, Walker said. By voluntarily adopting CFSA rules, called "best practices," payday lenders hope to avoid government regulation and lawsuits, he said.

One of those rules regards Internet lending: "A member that offers payday advances through the Internet shall be licensed in each state where its payday advance customers reside."

Dunkley's Cash Central Web site, www.cashcentral.com, reinforces the necessity of being state-certified.

"State-licensed lending is your assurance of security and a low-cost loan. Many payday loan sites simply take your application and sell it off to the highest bidder, operate offshore or loan "under the radar" to avoid being governed by state and federal finance laws," the Web site says. "That means your information is being seen by entities you never intended. It also means they can charge you outrageous prices, high fees and unlimited refinances designed to keep you extending your loan indefinitely."

But Dunkley's other company, Quik Payday.com, has legal problems with Kansas and West Virginia for violating their state laws on payday lending, said Norman Googel, assistant attorney general for West Virginia.

"Quik Payday doesn't want to license with Kansas or comply with West Virginia law in any way," he said. "They think they are totally above state laws."

Googel added that because of lax laws in Utah, it has become "ground zero" for payday loans.

Another Dunkley corporation, Quik Check Financial, currently lets customers in Utah extend their loans by paying only the interest for up to five times. That's the legal limit in Utah, but the CFSA best practices states lenders should cap such rollovers at four times or fewer.

Walker said that all the rules are voluntary and that CFSA does not police its members. Dunkley did not return phone calls and the receptionist at Direct Financial Solutions in North Logan said, "He doesn't work here any more." She later confirmed that he still owned the company.

The future

Utah currently has no usury laws, which cap interest rates. The term usury refers to lending money at exorbitant interest rates and is forbidden in the Old Testament and the Koran. Shakespeare wrote about usury in "The Merchant of Venice." The character of Antonio wanted to borrow money to help his friend woo a rich woman. The late fee for that loan, which ultimately came due, was a pound of flesh.

Walker said the term usury doesn't apply to the payday industry since it only charges what the market will support.

People in Utah paid about $69 million in payday loan fees last year, according to the CRL, and some Utah lawmakers are taking notice. HB 329, sponsored by Rep. Lou Shurtliff, D-Ogden, would, among other things, make $500 the maximum loan amount.

Rawle said he opposes any caps.

"We feel the free market takes care of the industry," he said.

With a high customer satisfaction rating and booming demand for services, the payday loan industry must be doing something right, he said.

Standing outside the 2nd District Court in Ogden, North said that despite the negative media attention that payday lending receives, it has little to no effect on business.

"We have our customer base," he said. "And when they need money, they'll come back."

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