Bill Would Revive Payday Loans for N.C.

As of Wednesday, February 27, 2013

Payday lending was banned in North Carolina more than a decade ago, but a bill sponsored by Moore County's state senator would bring back the controversial practice.

Payday loans are, in effect, cash advances for workers in between paychecks. Borrowers repay the loan or a portion of it at payday. Opponents have long criticized the high interest rates that typically accompany such loans.

State Sen. Jerry Tillman's Senate Bill 89 authorizes "deferred presentment transactions" up to $500 and enables the lender to charge a 15 percent fee per $100 borrowed.

"On a typical loan repayable in two weeks, the annual percentage rate would be more than 300 percent," N.C. Attorney General Roy Cooper, a Democrat, said in a statement. "This is the same rip-off we ran out of our state years ago. These overpriced loans trap borrowers in a cycle of debt many cannot escape.

"Payday lending was a bad idea then, and it's a bad idea now."

Chris Kulka, senior counsel for government affairs at the Center for Responsible Lending in Durham, also opposes SB89.

"We kicked payday lenders out of the state a decade ago," Kulka said. "It makes no economic sense to let them back in."

Tillman, an Archdale Republican who represents Moore and Randolph counties, said the bill has safeguards that would prevent the abuses of the past and keep out financial predators.

"You'll never get the kind of interest the critics are talking about because you have to pay off your loan entirely or you don't get another one," said Tillman, who is Senate majority whip. "If you fail to pay back the loan, you're out of the system forever. This bill has teeth in it."

Previously, borrowers could have multiple loans, often rendering them unable to repay any principal or forcing them to roll over the loans and generating higher interest charges.

Tillman said lenders would be charged a transaction fee, which would help fund a database to keep track of borrowers.

"The database is needed to make sure people don't go down the road and try to get another loan," he said.

Tillman said the legislation also bans "rollover" loans.

"The abuses of the past occurred because of the lack of regulations," he said. "We're doing it right this time. I've had to educate people to undo the past for them to see the merits of my bill.

"We're fine-tuning it right now. It's got several steps to go, but you've got to start somewhere."

Current state law allows a maximum rate of 16 percent on consumer loans under $25,000, except that licensed consumer finance lenders can charge up to 36 percent on loans under $600.

A new poll released Monday by Public Policy Polling found that 73 percent of North Carolinians would like to see current lending limits remain intact, and 72 percent said they would be "less likely" to vote for a legislator that supported SB89.

The bill would not allow payday loans to be made to military personnel or their spouses. Congress banned payday lending to military personnel in 2007.

After a four-year experiment, payday lending was outlawed in North Carolina in 2001. But it wasn't until 2006 that the last payday storefront was finally shut down. North Carolina is one of 12 states that prohibit the practice.

Consumer advocates call payday lending "legalized loan-sharking," in part because the loans and fees can trap consumers in debt as new loans are borrowed to replace the old ones. As a result, cash-poor people enter a cycle of debt in which many pay more in interest than they ever borrowed.

Industry supporters, on the other hand, say payday loans offer a government-regulated option for people with limited credit to get access to money quickly for unexpected needs. They add that the higher costs to borrowers are justified because payday loans are risky.

A study released earlier this month by the nonprofit Pew Charitable Trusts found that just 14 percent of borrowers nationwide can afford to pay off the average payday loan when it comes due.

"These data help explain why most borrowers renew or re-borrow rather than repay their loans in full," the report said. "Borrowers perceive the loans to be a reasonable short-term choice but express surprise and frustration at how long it takes to pay them back."

Other findings in the Pew report include:

n Fifty-eight percent of payday loan borrowers have trouble meeting monthly expenses at least half the time.

n Forty-one percent of borrowers have needed a cash infusion to pay off a payday loan.

n By almost a 3-to-1 margin, borrowers favor more regulation of payday loans.

n Payday loans do not eliminate overdraft risk, and for 27 percent of borrowers, they directly cause checking account overdrafts.

"This experience leaves borrowers torn," the report said. "(They are) grateful to have received respectful customer service and credit when they sought it, but feel taken advantage of by the loan's cost and are frustrated by the difficulty of repayment."

The Community Financial Services Association of America (CFSA), a payday industry trade group, said the report "unfairly paints the entire industry with a broad brush."

"Pew's re-search in this area continues to lack vital context about the broader marketplace and the lack of available credit options, the importance of consumer choice, and why 19 million Americans use payday loans each year," the CFSA said in a statement issued last week. "In our current economy and constricted credit market, it is critical that consumers have the credit options they need to deal with their financial challenges."

Contact Ted M. Natt Jr. at (910) 693-2474 or tnatt@the pilot.com.

More like this story

alladat1 2 months, 3 weeks ago

Maybe if someone would "follow the money trail" we would find the real reason why Sen. Tillman feels we can't do without this vital service.

Toda 2 months, 3 weeks ago

alladat1 => no argument here.... If Tillman has his hand in it, rest assured the people will be suffer from the high interest ... 15(100) = $15.00 or 15% (5) = $75.00 per $500 loan.

One can't help but wonder if there is a cap for PayDay Loans or can they or will they creep up to the 36%?

"except that licensed consumer finance lenders can charge up to 36 percent on loans under $600."

djcalaska 2 months, 3 weeks ago

These are not good for anyone except the owners of the companies...

Themis 2 months, 3 weeks ago

Agreed!-------Somebody smells a profit......and it's not us.

FightFireWithFire 2 months, 3 weeks ago

It truly amazes me that with all the economic woes we are experiencing right now, this seems to be the thing that our local government in focusing on. How about we get some good industry and jobs here, so that people will not have to use "payday loans" to make it through. Everyone knows how this sort of thing snowballs.....

PBinNC 2 months, 3 weeks ago

I did not vote for this man and was very upset that he won. Moore County had the opportunity to elect a local man from Whispering Pines with diverse interests, and superb qualifications. This is an example of getting what you asked for, a carbon copy of what we had before, with no wish to view the full picture. Remember, our Senator before this one proposed the first fracking bill - and even though it was not well written, it started the ball rolling and it just rolled a strike in the Senate.

herecomesthescience 2 months, 3 weeks ago

Gotta love backwards NC law making. Sweepstakes parlors? - The devil's work! Shut them down! Clear rip off loan operations (loan sharks really)?- Sure! Crank 'em up! At least with the sweepstakes places there is a known chance of loosing money, and the chance to win some back. With the payday loan operations you will be ripped off, 100% sure of that.

pgericson 2 months, 3 weeks ago

It's easy to critize payday loans if you never needed one. Granted, the process should have some oversight, just a credit card companies do. I know there were times in my youth when I ran out of money prior to getting paid. Luckily, I had qualified for a credit card and thus was able to bridge the gap. Payday loans can serve the same purpose for people who do not qualify for credit cards. If you eliminate legal ways to borrow money, the business will go to local loan sharks, who operate illegality. If you think the charges for payday loans are excessive.......

JD 2 months, 3 weeks ago

Neat, when do we get official bookies for horse races and such since loan sharks get to be legitimate?

DaveyNC 2 months, 3 weeks ago

You know what? There's a demand for this stuff. And where demand is found, someone will come up with the supply. Some people need this service and are willing to pay for it. Some people have no other options. Why not allow this service to be provided legally? Because I promise you, someone has been providing this service all along. It didn't go away just because it was made illegal. Bring it back out into the open.

galanins 2 months, 3 weeks ago

Funny how banks will provide high fee cash advances but wil not lend, to the same people, a standard bank personal loan with lower interest and longer terms. I guess it is the high fees that are driving them into this market as that is all the banks know how to do anymore is charge fees. Also, part of the reason that people have to turn to payday loans (http://www.fastpayday4u.com/) in the first place is the high bank fees.

by galanins

Toda 2 months, 3 weeks ago

"How are fees established?

Our fees are competitive and in compliance with all applicable state and federal laws. Depending on the lender the fee can range from $25 to $30 per $100 borrowed. So if you borrow $300 the fee will be between $75.00 to $90.00.