Payday lending bill draws criticism

Posted February 14, 2013
Updated February 15, 2013

— North Carolina lenders would once against be able to make small, short-term loans, known generically as payday loans, under a bill filed by Sen. Jerry Tillman, R-Randolph.

Lawmakers outlawed payday loans in 2001, and a 2005 court case pushed the last pieces of the industry out of the state. 

Tillman said Thursday that there were problems with the old payday system, but he said there's a need for people to get short-term credit based on their income.

"We have people who get in a bind from time to time, good people who have a job," he said. "I've run into people in my district who have the need."

The classic example, he said, was someone who needs money to repair their car but doesn't have a credit card.

Tillman's bill would cap the amount borrowed at $500 and limit the interest rate to 15 percent. That's lower than payday lending bills from prior sessions but still amounts to an annual percentage rate of 300 percent for a loan repaid in two weeks, consumer advocates say. 

Tillman's bill has drawn criticism from consumer advocates and Attorney General Roy Cooper, a Democrat, who said the payday industry should not be allowed to gain a foothold in the state.

"Payday lending is like needing a life preserver and being thrown an anvil," Cooper said. "We've seen it in north Carolina – very high interest. People tend to get on a debt treadmill they have a hard time removing themselves from.

"When you unleash this industry on North Carolina consumers, a lot of people are going to be hurting."

After fighting payday lenders for years, he said, he's not surprised they're trying to come back.

"There's a lot of money to be made from people who are struggling with this business," he said.

Payday lending AG, consumer advocates warn against payday lending

Consumer advocates also criticized the measure, which is tentatively expected to be heard in committee next week or the week after.

"The way the loans are designed, it's very hard to pay them off. So, not only are you paying an incredible amount to have these loans, you also have a very high expectation or risk that you'll be trapped in these loans for a long time, paying those very high interest rates," said Al Ripley, director of the Consumer and Housing Project at the left-leaning N.C. Justice Center.

“These loans are especially dangerous to seniors,” said Helen Savage of AARP North Carolina. “The high costs of predatory loans carry serious risks for all of us, but especially for older North Carolinians on fixed incomes.”

Tillman acknowledged that there were problems with the old system of payday lending. Borrowers could get in trouble when they couldn't meet the terms of their first loan and took out a second loan to pay it off. That sparked a cycle of debt that many found hard to escape.

Senate Bill 89, he said, would require that borrowers pay off their payday loans before taking out another and would create a monitoring system to ensure that someone couldn't go to one lender to pay off another. 

"The rollover thing is what killed people in the past," Tillman said, adding that the bill will likely be revised.

For example, he said he hasn't decided whether the Commissioner of Banks or another state agency should oversee the industry. 

"If we're called upon to regulate it, we'll do that," said Ray Grace, acting commissioner of banks.

His office played a role in the lawsuit that closed down the industry here in 2005, but he said it wasn't his role to advocate one way or the other.

"It's up to the General Assembly to determine what's best of the people of the state," Grace said.

His office's only concern would be making sure the rules for regulating the industry were clear and that there was sufficient funding to provide oversight. 

Payday lenders said legalizing their industry again would help people with poor credit.

"It helps ensure that, during economic hardships, North Carolinians have access to reasonable, properly regulated financial options," Jamie Fulmer, senior vice president of Advance America, said in a statement. "In recent years, consumers' borrowing choices have narrowed, but their need for credit has not diminished."

Ripley said there are plenty of less-predatory options.

"We've done just fine in North Carolina for over 10 years without payday lending," he said. "In fact, I would argue that borrowers are much better off without this product."

Rep. Ruth Samuelson, R-Mecklenburg, said the payday bill was one of several pieces of banking legislation she knows people are interested in running through the House.

A House companion to Tillman's bill has not yet been filed, and Samuelson said there are other non-traditional lending products that businesses might ask to legalize. However, she said, there are other bills dealing with mortgage interest and a cleanup of state banking act regulations that will take priority. 

"Those are the structural things we need to do," she said. Asked whether the payday loan bill will get done, she said, "we'll see."

In a news release on the measure, Cooper noted that the bill would not allow for payday loans to be made to military families.

"Congress already banned payday lending to military personnel in 2007 to protect service members from these predatory loans," he said.


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  • lec02572 Feb 21, 2013

    Simple question: If payday lending is such a great idea, why are National Banks baned from participating in payday lending by the OCC? National Banks cannot do payday lending, that is a fact. It is predatory lending at its worst. They want to put those individuals that can least affort it in to a cycle of debt. Stopping individuals from getting multiple loans is not the point, it is the 435% interest rate that is so horrible.

  • Wirklich Feb 16, 2013

    Hilarious! NC Republicans want us to believe they are helping the poor by inviting PREDATORY lenders to siphon whatever they can from some of our poorest citizens. At least the current regime has been consistent so far, doing all they can to make sure their business buddies and their lobbyists can make a buck off the poor, while voting further cuts for programs that help the poor. Unjust! These businesses were not welcomed before, and we don't need the now! But the fact that they have listening ears among the Republican legislators says something about what they value most: money over people! Sad...

  • wolfpackfan0660 Feb 16, 2013

    I use to work for one of the companies. They know all the legal loop holes to get around the laws. its a big rip off for anyone who gets these loans. its crazy the amount of interest people pay. they say the interest rates would be controlled but they will find a way to make that money. lec02572...completely agree with ya! check em out!

  • louisburgpatriot Feb 16, 2013

    Glad to see that the liberal operatives from CRL have planted their misleading diatribes on the message board. It is clear no one has read the actual legislation. There are strict regulations in the bill that protect those that desperately need funds. Do some research on who funds CRL - the very man that caused the sub-prime mortgage crisis. Even SNL made a parody regarding their hypocrisy. As far as calling these people predatory is false. Currently, in NC you are able to get cash advances from online companies that are not regulated in the slightest. Furthermore, the bill has a fee. To call a fee an APR, when the bill expressly protects against high interest rates, is an outright lie. $15 per $100 loaned is much cheaper than even an overdraft from you ATM. If we do not give struggling North Carolinians regulated options, they could be forced to visit their neighborhood loan shark in a back alley.

  • RichardE Feb 15, 2013

    Senator Tillman, did you write all those words in your bill? Senator Tillman, how is your campaign financed? Did any of the funds from your campaign come from any of these payday loan companies, their owners or corporations that engage in this practice? Senator, expanding state government hardly sounds like anything resembling republican ideology, how do you explain that?

  • BubbaDukeforPresident Feb 15, 2013

    These places are predators. They know that the majority of the lendees are only going to pay the minimum weekly payment. These places should not be allowed to do business.

  • Come On_Seriously Feb 15, 2013

    I find it odd that a NC Senator would propose that the borrowers be monitored so that they couldn't go from lender to lender to payoff previous loans. Do we actually have these types of resources? I doubt it! lmatthews

    That's right. So in the midst of all this hot deregulation, he wants to bring back predatory businesses and then regulate the borrowers(for their own safety, of course) instead of the institutions who profit?

  • My Two Cents Feb 15, 2013

    I so totally agree that this was a bad idea then and it's a bad idea now. And Tillman trying to sell it on how it would be beneficial to the elderly. Please, that is not the core demographic who would utilize these facilities and he knows it. I say keep them out of NC.

  • oldaltar Feb 15, 2013

    This guys now care about people. He votes to reduce their unemployment insurance, votes to expand medicaid and now is pushing for payday lending. What a stage actor. This is what NC have voted in. It is not about the people but special interest.

  • lec02572 Feb 15, 2013

    Payday lending needs to stay out of North Carolina! This is nothing but preditory lending at its worst. They pray on the poor and uneducated charging in excess of 435% interest on short term loans many times rolling them over into new loans. Limiting the number of loans will not work either, its been tried elsewhere. These are not people we want in this state and any legislator who backs the bill needs to be checked for any connection to these people.