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Nine Moons » Blog Archive : Why Do Payday Lenders Thrive in Mormon Country? » Why Do Payday Lenders Thrive in Mormon Country?

Why Do Payday Lenders Thrive in Mormon Country?

Seth - February 20, 2008

For those of you who have just finished pondering the alleged correlations between Mormons and depression, and Mormons and Bankruptcy, here’s a new one for you – Mormons and payday loan joints. According to the Consumer Law and Policy Blog, a new study is showing disproportionate numbers of payday lenders in the Bible Belt and in the Mormon West. The study will be outlined in a forthcoming issue of Catholic University Law Review, but is available for download in PDF format from the Social Science Research Network here (all 97 pages of it).

For those unaware, a “payday loan” is a small, short-term loan that is intended to cover a borrower’s expenses until his or her next payday. Typical loans are between $100 and $500, on a two-week term and have interest rates in the range of 390 percent to 780 percent (APR). The loans are also sometimes referred to as cash advances, though that term can also refer to cash provided against a prearranged line of credit such as a credit card. Very often such operations are quietly funded by established financial institutions like Wells Fargo or US Bank. As you can imagine, loans with that kind of interest rate can get out of control in a hurry. Miss one payment, and it triples. It’s pure robbery that preys off of the misfortunes and desperation of the vulnerable in society.

The authors express some surprise that such predatory lending establishments should be so much more prevalent in areas known for their commitment to the Bible – which strongly condemns “usury” (see Gen 22:25; Lev 25:35-37; and Ezek 22:16, 20-22 for a few examples). But they suggest that the connection has more to do with politics than religious ethics (since both regions share a very similar political stance). Furthermore, the prevalence of payday loan operations in these states may be due to lax lending regulation at the state level. Using Utah as an example, the authors note:

Utah retains no consumer credit price limitation – either in a general usury law, a small loan law, or in its payday lending authorization legislation. Nevertheless, the Utah legislature has passed a payday lending authorization statute. This legislation includes a variety of essentially cosmetic rules that do not meaningfully impede or change payday lending business practices within the state. Some of the rules simply echo federal law in force irrespective of the Utah statute.

This legal environment has facilitated the development of a powerful payday lending industry both in Utah’s sparsely populated desert areas as well as the rapidly growing capital city. Utah has about 383 payday lenders, which for its small population is quite a lot. Per capita, Utah has the 9th highest density of payday lenders in the nation. Its payday lender to bank ratio is also far above the national average – 8th highest in the country – giving Utah a composite total rank in the top 10. All of Utah’s U.S. House districts have above average densities of payday lenders, the worst of the three being Rob Bishop’s 1st district which ranks 45th out of 435 House districts for overall payday lending activity.

The authors present further grim breakdowns for senate districts, counties, and zip codes noting that “by way of comparison, Salt Lake County has more than twice the number of payday lenders than the entire state of Minnesota.” And apparently 10 other Utah counties are even worse than Salt Lake once you adjust for population and commercial activity (with Tooele and Uintah topping the list).

Apparently the band of Gadianton is doing well in Utah. Puts me in mind of 3 Nephi 24:5 – “And I will come near to you to judgment; and I will be a swift witness against… those that oppress the hireling in his wages… saith the Lord of Hosts.”

Not much to add to the study, except to wonder how Mormons working in the payday loan business can answer the temple recommend interview questions with a straight face. This stuff is serious bad mojo and makes Amway salespeople look like the latest Girl Scout Cookie fund drive.

28 Comments »

  1. Get rich quick schemes just seem to flow in Mormon culture. I cannot tell you the amount of times I have been offered to sell some product or other.

    I think the reason these things are so popular is because, “Well Jim is in our ward he is a nice guy at church.”

    I think church people tend to allow people to run them over just because they are “church members” as opposed to real people.

    Comment by Jon W — February 20, 2008 @ 4:07 pm

  2. I wonder if it has to do with a distaste for credit cards. It seems that most of the anti-debt talks we hear over the pulpit are aimed at the evils of credit card debt. I’ve talked to a few people who have taken out payday loans, and none of them have a credit card. They take out the loans for basics like groceries and gas- the kind of stuff that if I found myself short on cash for a few weeks, I would put on my Visa and pay off next month. Perhaps they convince themselves that a payday advance isn’t really debt.

    Comment by Keri Brooks — February 20, 2008 @ 4:31 pm

  3. Very foolish misconception. You would be INFINITELY better off running up a credit card balance than walking into a payday lending operation.

    Comment by Seth R. — February 20, 2008 @ 4:47 pm

  4. I don’t know why they’re prevalent in these areas, and I don’t know why they’re so frowned on by people who apparently have never lived on the edge. If a borrower pays off the loan at payday — and the vast majority do, according to reports — the fee is much, much less than, say, having your heat turned off and then having to pay a reconnect fee (and a deposit that you can’t spare). Payday loan places get a bad rap because fees are expressed in terms of interest; “honest” banks and “honorable” businesses like utilities and phone companies charge far, far higher rates, but escape the scorn because their fees are labeled “fees” instead of interest.

    Comment by Ardis Parshall — February 20, 2008 @ 6:16 pm

  5. Amazing – I think it might have to do with the keeping up with the Jones’ mentality in Utah. Most of my family and friends I know there live hand to mouth and, often, don’t have enough money so will occassionally use pawn shops or payday loan shops…

    Comment by Devyn — February 20, 2008 @ 6:42 pm

  6. The sucky thing about payday loans is when you get paid, you’re still broke.

    Comment by Susan M — February 20, 2008 @ 7:34 pm

  7. Ardis is right.

    Have you bounced a check at the bank lately? Your $35.00 check gets a bounced check fee of $35 or $40 depending on your bank and if you don’t put enough funds in your bank within so many days they charge you a daily fee of $8 per day or more. Figure that out on an APR basis, it makes the payday loans look cheap!

    It’s obviously a business niche that needs filling and there are business people who are more than willing to fill it. Don’t yell at the business, yell at the people who keep them open.

    Comment by Don — February 20, 2008 @ 7:36 pm

  8. I need to write faster. Don and Ardis beat me to it.

    The original post mentions APRs of 390% to 780%. Compare the APRs of a few other two-week “loans” of $100:
    –$50 NSF fee for hot check that you can cover before it’s resubmitted: 1300% APR
    –$100 NSF fee for hot check that you cannot cover before it’s resubmitted: 2600% APR
    –$80 reconnect fee for phone bill: 2080% APR
    –$29 late fee for credit card bill: 754% APR + the possible increase in your interest rate + the interest accrued while your payment is delayed + plus the increased interest on future purchases due to your worsened credit rating (if you still have one to hurt)
    –The grand finale: $50 credit card bill + $50 phone bill: $100 NSF + $80 reconnect + $29 late fee == 5434% APR

    Payday loans are not an unqualified evil.

    Comment by Edje — February 20, 2008 @ 8:04 pm

  9. I need to write faster. Don and Ardis beat me to it.

    The original post mentions APRs of 390% to 780%. Compare the APRs of a few other two-week “loans” of $100:
    –$50 NSF fee for hot check that you can cover before it’s resubmitted: 1300% APR
    –$100 NSF fee for hot check that you cannot cover before it’s resubmitted: 2600% APR
    –$80 reconnect fee for phone bill: 2080% APR
    –$29 late fee for credit card bill: 754% APR + the possible increase in your interest rate + the interest accrued while your payment is delayed + plus the increased interest on future purchases due to your worsened credit rating (if you still have one to hurt)
    –The grand finale: $50 credit card bill + $50 phone bill: $100 NSF + $80 reconnect + $29 late fee == 5434% APR

    Payday loans are not an unqualified evil.

    Comment by Edje — February 20, 2008 @ 8:05 pm

  10. I don’t live in Utah so I don’t really know the dynamics there but where I do live (Mesa, AZ) seems to be pretty heavily populated with two groups, Mormons and illegal immigrants. I live in the older part of town (near the temple) and there are payday loan places on almost every corner. They are not just loan places but check-cashing and Western Union type businesses. When you have a great number of people who cannot get a bank account or credit card and/or they need to send money out of the country this is their only option. There is a huge need for them.

    So I guess you could pull up those stats and say that this heavily Mormon-populated area has a higher than average number of payday lenders. However, I do not think the two are related. I do recall reading a USA Today article several months ago (when Illegal Immigration was the hot topic) stating that Utah had a larger than average population of immigrants. I might be way off base here, but it is the first thought that came to my mind.

    Comment by Jill — February 20, 2008 @ 8:05 pm

  11. Sorry for the double-post (9-10). In the same vein… Seth R (3) says, “You would be INFINITELY better off running up a credit card balance than walking into a payday lending operation.”

    Credit cards might not be an option or might not be a wise option.

    IF you already have a credit card AND it’s not maxed out, a cash advance will run you a 3% (or so) transaction fee (98% APR) plus the rate on advances, which is higher than the rate for purchases and is paid off last. If you carry a credit card balance more or less indefinitely, that one-time cash advance holds on for years. So, in terms of APR a credit card is 2-3x better than a payday loan.

    APR is not, however, the only consideration. If you don’t have a credit card, you don’t have time to get one. If you are dealing with “the misfortunes and desperation of the vulnerable in society,” you probably won’t get a favorable interest rate. And, while we’re generalizing about economic edge-dwellers (poor or otherwise), payday loans are shovels next to the backhoes of credit cards in terms of the size of hole you can dig for yourself. It might be a very good idea to not have the temptation of a credit card.

    Comment by Edje — February 20, 2008 @ 8:16 pm

  12. Jill, I live in Colorado where the Hispanic population and immigration is an even bigger deal than in Utah. Yet Utah still outstrips Colorado. I’m more inclined to point to consumer protection statutes than illegals.

    Comment by Seth R. — February 21, 2008 @ 12:21 am

  13. Speaking from too much experience, credit cards and pay day loans are symptomatic of the ethos of “buy now, pay later.” I know (boy, do I know) that there are circumstances when one cannot pay cash for certain contingencies and, therefore, debt is the only viable option. But, I think the exception and the rule have reversed themselves in the psyche of too many in the US and in the Church. (BTW, I have never taken out a payday loan. Please don’t ask if I’ve ever had difficulty with credit cards. Thank you.) Thankfully, I am not past being a learning organism.

    Comment by mondo cool — February 21, 2008 @ 8:14 am

  14. As a bankruptcy attorney, I’m finding that the largest growth area for bankruptcies is actually among the 50 and up age group bracket and I’ve seen studies reaching the same conclusion. Very few of my clients were genuinely irresponsible with their money or operating under a “buy now, pay later” ethos. More often, the credit card was the only way to keep the heat on, or pay the hospital bill.

    Comment by Seth R. — February 21, 2008 @ 8:59 am

  15. “genuinely irresponsible”
    Does that reach the classification of oxymoron?

    Comment by mondo cool — February 21, 2008 @ 12:22 pm

  16. Or just sloppy writing.

    A question for Ardis and others though…

    Why is it any answer to say “well, banks are doing it too…”? Usury is usury, is it not?

    It’s like witnessing a guy in grungy clothing committing a robbery and saying – “well, we need to be easy on him – last week I saw a guy in a nice suit do the same thing!”

    Comment by Seth R. — February 21, 2008 @ 1:17 pm

  17. For what it’s worth, the only person I know of in Utah who ever got a payday loan was a mentally retarded woman. Her social worker (a friend of ours) walked in, opened a can of whup on their assets, and got the loan cancelled.

    So in that light, perhaps consumer protection laws are a big factor. The legality of their action was dubious, which was why she was able to get the loan cancelled, and it might not have happened in other states.

    This may have already been mentioned before, but at least in Provo they also seem to spring up pretty frequently in shopping areas where the storefronts are in Spanish. My guess is they probably don’t go to great lengths to explain the nature of their contracts to clients.

    As for the Bible Belt… you have to ask!? The pawn shop flanked by a liquor store and gun shop is a southern staple. I refuse to get concerned about Mormons and payday loans until I see one of *those* shopping centers pop up in Utah. : )

    Comment by mellifera — February 21, 2008 @ 2:24 pm

  18. As far as the bank fees go, it would be prudent to get an overdraft protection or line of credit attached to your banking account. The line of credit could be 20% or higher, but if you pay it back quickly, that’s only pennies instead of a $35 bounced check fee. It’s saved our bacon a number of times when we were on the wire. If your bank doesn’t offer this feature, shop around for one that does.

    Also if you don’t have a credit card, you should get one. You have a month to pay off the loan before any interest even occurs, then pay it off in full whenever possible. Having a credit card with bad interest for emergency use is better then having no credit card at all. And believe it or not, the worse your credit score is, the happier the credit card companies will be to issue one to you.

    Comment by Misty — February 21, 2008 @ 3:53 pm

  19. Why? It’s called T-I-T-H-I-N-G.

    Comment by Randall — February 21, 2008 @ 9:05 pm

  20. A relevant piece of research is “Payday Lenders: Heroes or Villains?” by Adair Morse, a finance professor at the University of Chicago. Here is the abstract:

    “I study the effect that the availability of exceptionally high-interest consumer loans (payday loans) has on individual welfare by using natural disasters as an exogenous shock to communities’ financial condition. Utilizing a propensity score matched, triple difference approach, I find that communities with payday lenders show greater resiliency to natural disasters. For three of the four welfare measures considered – foreclosures, births, and alcohol and drug treatment admissions, – the estimates suggest that payday lending enhances the welfare of communities. I discuss whether this effect is limited to individuals facing personal disasters or applies in general.”

    Comment by Darren — February 22, 2008 @ 10:35 am

  21. I have sympathy for people that use payday lenders. It is part of the self-reliance culture we encourage in Mormonism.

    If I were out of other financial options, I think I’d rather take out a payday loan than ask the church or my family for money if I thought I would be back on my feet quickly. I know that wouldn’t be the best financial option for me, but I’d be sure I wasn’t putting someone else out or taking advantage of their generosity.

    Comment by Bradley Ross — February 24, 2008 @ 6:04 pm

  22. Utah newspapers have written some treatments of the subject. One from the Deseret News in 2005 and another from the Standard-Examiner more recently. Most interestingly, however, was an article from this month from the Deseret News about how the payday lenders are swamping the small claims courts.

    We read, “Payday lenders filed so many lawsuits that they accounted for 51 percent of all small claims cases along the Wasatch Front during the past three years, and 58 percent of those filed just last year, the Morning News study shows.”

    Further we read that people who get the loans sign an agreement to show up in a particular small claims court, even if it isn’t anywhere near their residence.

    “Peterson, the U. law professor, says such agreements mean loan recipients may ‘have to travel a long way and find lodging, so even showing up in court could be more expensive than their original loan. People who take out these loans frequently are on the verge of falling into poverty, so traveling across the city or state is much less likely for them.’”

    Comment by Bradley Ross — February 24, 2008 @ 6:17 pm

  23. KUER News in Salt Lake City interviewed Professor Peterson (the author of the above-mentioned article) for a Radio West episode. You can listen here.

    Comment by Seth R. — February 25, 2008 @ 9:56 am

  24. I only have this information on hearsay, but since no one else has mentioned it I’ll say it anyway: my mom says that, culturally, many hispanics tend to dislike banks, so for many immigrants (legal and otherwise,) a payday loan/check cashing institution is preferable to using a bank, even if they’d be eligible for a bank account. (FWIW.)

    Comment by Zina — February 28, 2008 @ 12:05 am

  25. Why is it any answer to say “well, banks are doing it too…”? Usury is usury, is it not?

    Usury is usury, but usury hasn’t been banned since the law of Moses. Today it’s as moral as walking 800 paces on the Sabbath. The church has paid interest and owned businesses that charge interest rates that reflect the risk of getting the money back.

    Comment by Matt Evans — February 28, 2008 @ 6:27 pm

  26. I once worked for a payday-loan company in Utah where I worked all of the delinquent accounts. During my employment, I encountered lots and lots of people who never had any intention of repaying the loan. Some people took-out loans to leave the state or even the country, or to pay to file a bankruptcy, or even used false/fraudulent id. The sign saying “No Credit Checks” is a big draw to all the worst borrowers.

    My employer was one of the bigest and best in Utah but eventually closed its doors for good in bankruptcy.

    The new crop of payday lenders came after some easing of lending laws that allowed new companies to be profitable.

    Comment by Kelton Baker — March 1, 2008 @ 9:49 pm

  27. I’m reminded of this one experience I had at the aforementioned company…

    I was noticing that dozens of recently-defaulted borrowers were all resisting collection efforts and quoting to me the same chapter and verse of the Bible about usury and informing me that I was an evil corporation run by “Mormons going to hell”. (The part about ownership of the company by Mormons was verifiably true).

    After a few weeks of hearing the same story, over and over, I noticed a definite pattern and a lot of scripted responses. Eventually, our company found that an entire congregation of a local Pentecostal Church had taken the loans all in the same month, and all at the behest of their pastor who had herself taken out a loan months earlier but quit paying, warning us that we would “suffer wrath” if we continued usury against her. I believe their crime should have warranted felonious RICO status, and, as I tried to point-out, violated God’s law against theft. But most of these people were unrepentant and just continued on about how evil and powerful Mormons were, and they were just merely trying to balance the power!

    Comment by Kelton Baker — March 1, 2008 @ 10:10 pm

  28. Oh, come on Matt!

    Usury = 800 paces on the Sabbath?

    That is one of the most ridiculous comparisons I’ve ever heard.

    I know you can do better than that.

    Comment by Seth R. — March 2, 2008 @ 6:30 am

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