Ogden may act on payday loans

OGDEN -- Payday lenders looking to establish new operations in Ogden may be living on borrowed time.

In the next few weeks, the city council will consider a draft ordinance recommended by the Ogden Planning Commission that limits the number of local payday loan establishments to eight.

The 21 payday or title loan lenders already in Ogden would be allowed to remain, said Greg Montgomery, the city's planning manager.

If any of them close, new payday lenders would not be allowed to replace them until the number operating falls below eight, he said.

The proposed ordinance also requires lenders to use muted earth-tone color schemes for building exteriors and prohibits them from buying precious metals such as gold, because of the risk that the items may be stolen.

Payday lenders would also be required to post at the entrance of their establishments large signs in English and Spanish that make the following disclosure: "This business specializes in giving high-interest loans. These loans should not be used as a long-term financial solution. Ogden city encourages you to consider other options for obtaining money if you think you might not be able to repay the full amount of your loan on the date it is due."

The draft ordinance also calls for payday loan operations to be at least 660 feet from historic buildings.

Council Chairwoman Caitlin K. Gochnour said the aim of the ordinance isn't to discriminate against payday lenders, but to regulate the number that operate.

"We know they serve a purpose, but we want to limit the number that issue high- interest loans."

Councilman Doug Stephens said he's not opposed to payday lenders, but wants to ensure the number operating isn't excessive for the city's population of about 80,000 residents.

"I would not discourage any business from coming into Ogden, but you need the right ratio to be able to survive."

Mayor Matthew Godfrey said he favors the council reviewing the proposed ordinance.

"We agree with the city council's discussion on this proposed ordinance. This is a prudent step."

Development of an ordinance to regulate payday lenders has been a joint goal of the city council and administration, said Janene Eller-Smith, a policy analyst for the council.

The council hasn't scheduled a work session to review the ordinance.

Wendy Gibson, district manager for Check City, a payday loan company that has two operations in Ogden and others throughout the state, said the proposed ordinance unfairly targets an industry that provides a valuable financial service.

"I was shocked (by the proposed ordinance)," she said. "It wasn't very well thought out and poorly crafted."

The ordinance's requirement that payday lenders display a disclosure sign is also possibly unconstitutional because it violates the First Amendment right to free speech, Gibson said.

"It goes a little bit too far. It would require us to post the city's political and economic views in our lobby."

Bruce R. Baird, a Salt Lake City attorney who represents the Utah Consumer Lending Association, a coalition of payday lenders, sent a blistering letter to the city council last week, challenging the legality of the ordinance.

He also complained the ordinance was drafted without input from the lenders' association.

"In my long experience as a lawyer specializing in dealing with local governments, I have always found that regulations created without active participation of all stakeholders are usually flawed and, often, lead to litigation or, equally badly, to poorly implemented public policy," his letter to the council states.

"In that regard, my client and I are troubled that the current draft ordinance was obviously prepared in consultation only with special interest groups that vehemently oppose the mere existence of short-term lenders in spite of the important service that they provide."

Nancy Groshart, an Ogden resident who belongs to the Coalition of Religious Communities, said her organization has worked without success to persuade state lawmakers to pass tough legislation to regulate payday lenders. As a result, the coalition has turned its attention toward getting individual cities to adopt local ordinances, she said.

The payday lending industry has experienced significant growth since the 1980s, according to a city council report.

Studies indicate there is one payday lending establishment per 10,000 people in the U.S. However, Utah's rate is higher, with 1.6 establishments for every 10,000 people, the city council report says.

Utah's higher-than-average number is partly a result of the state's deregulation of interest rates for payday lenders. Many cities in Utah regulate payday lenders through zoning or density restrictions, or a combination of both.

The Roy City Council approved an ordinance in August allowing only eight lenders in the city, which equates to one for every 5,000 residents, and requires establishments to operate in regional commercial zones.

Roy is at its limit for payday loan operations, said City Manager Chris Davis.

The Sandy City Council adopted a similar ordinance limiting the number of payday lenders to one per 10,000 residents.

In explaining the purpose of the ordinance, Nick Duerksen, Sandy's assistant community development director, said, "The city council was concerned about those types of businesses taking up prime real estate property."