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SALT LAKE CITY (AP) -- High-interest loan shops in Utah won't lend money to members of the military after a new federal law capped the annual interest rate at 36 percent, a spokesman said.
"The total fees we could charge are $1.38 per $100 for a two-week loan. That is less than 10 cents a day," said Cort Walker, spokesman for the Utah Consumer Lending Association, which represents the payday-loan industry.
The law, which covers members of the military and their dependents, applies to all financial institutions, including banks.
It is estimated about 13 percent to 19 percent of military personnel took out high-interest, short-term loans last year, borrowing roughly $350 each time at annual interest rates starting at 390 percent, according to a report in August by the Government Accountability Office.
They're called payday loans because people often borrow against a future paycheck.
Walker predicted the law will force members of the military to bounce checks or venture into "more risky alternatives."
Linda Hilton, an industry critic and director of the Utah Coalition of Religious Communities, disagrees.
"It may be taking an option away from the military, but it's taking away their worst option and leading them toward others," she said.
"People who go to payday loans first often find themselves deeper in debt and trouble than when they started, then they ask their church, military-relief groups, family or others for help -- places they should go first," she said.
In 2005, the Deseret Morning News did a series of stories on payday loans and found a high concentration of shops near Hill Air Force Base.
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Information from: Deseret Morning News
(Copyright 2007 by The Associated Press. All Rights Reserved.)
