People arrested after falling behind on payday loans
You will find the words in the Utah constitution: “No Debt Jail Time.”
And yet, more than 3,000 people in the state have received arrest warrants resulting from an unpaid loan between September 2017 and September 2018, according to a new payday loan report from the Consumer Federation of America.
“People are definitely going to jail,” said Christopher Peterson, CFA director of financial services.
Every year, 12 million Americans use short-term, high-interest “payday” loans. Almost three quarters of borrowers have a family income of less than $ 40,000 and almost 10% are retired.
The interest rates on store payday loans are, on average, almost 400%. Many people find themselves in the “debt trap”, borrowing payday loan after payday loan and having to skip basic expenses such as rent or health care to meet payments.
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Often they are late and the lender sues them in small claims court.
According to CFA researchers’ analysis of Utah data, nearly 70% of all small claims court hearings in the state involved high-cost lenders. The average trial the researchers looked at lasted 14 months.
“A lot of these people have multiple jobs and babysitting obligations,” Peterson said. “They can’t afford to go to court over and over again.”
If a borrower misses a court date, he can be found in contempt of court. And often, lenders “aggressively ask” judges to issue arrest warrants against borrowers, Peterson said. In fact, nearly 3 out of 10 cases examined by the CFA resulted in the issuance of a mandate to a borrower.
A spokesperson for the Community Financial Services Association of America, a trade group that represents payday lenders, said its members “do not engage in unscrupulous business practices such as those described in the report, and we condemn them with force “.
The spokesperson added that its member companies, which are present in Utah, support legislation that would establish additional safeguards for consumers.
These debt arrest warrants are likely issued in other states as well, Peterson said.
“The laws that allow this to happen in Utah are not limited to Utah,” he said. “Contempt of court rules are prevalent across the country.”
Borrowers are frequently sued for small amounts. The high-cost, median lender sued its client in Utah for debt of $ 994, the researchers found.
A man who fell behind on a payday loan has received at least five arrest warrants by small claims court in West Valley City, Utah. The debt in question was $ 160.50.
Ironically, the researchers point out, small claims court took off at the turn of the 20th century as an alternative to lengthy and expensive litigation for middle-class people. Today, those efforts have been perverted, Peterson said.
“Utah – and probably other states as well – have allowed these courts to become low-cost, state-subsidized, quasi-criminal debt collection agencies for predatory lenders,” the researchers conclude.