Raleigh, N.C. — The installment loan industry would be able to charge higher interest rates and more fees under a bill the Senate gave tentative approval on Thursday.
Such loans are often offered to consumers with no credit history or poor credit scores who can't get credit cards or other sorts of bank loans.
"I think that old fashion way of lending is really valuable," said Sen. Dan Clodfelter, D-Mecklenburg, noting that the industry had not had a rate increase in 30 years. Without an increase, he said, many small lenders would go out of business.
Clodfelter said it would be "irresponsible" not to offer an alternative to the payday lending industry, which the state has outlawed.
The measure is opposed by consumer advocates as well as North Carolina Attorney General Roy Cooper.
“Consumers don’t need higher interest rates and more fees at a time when many families are still struggling to recover from a bad economy," Cooper said today, pointing to a memo he issued earlier this week raising concerns about the high costs.
Senators made several changes to the bill before passing it. Among the most significant, the measure capped the interest rate for loans between $10,000 and $15,000 at 18 percent. Under prior versions of the bill, parts of the loan would have been charged at a "blended" rate, for which borrowers would have paid 30 percent interest on the first $5,000 worth of principle.
However, lenders could still charge interest rates of up to 30 percent for loans up to $5,000 and charge interest of 24 percent on the portion of a loan over $5,000 but less than $10,000.
Despite concessions made by bill sponsors, it still encountered opposition.
Sen. Ellie Kinnaird, D-Orange, pointed to statistics that suggest some 60 percent of borrowers are forced to roll over their loans, building up more and more interest and fees.
"This poor person ends up in an endless cycle of debt," she said.
But Sen. Rick Gunn, R-Alamance, said the bill had protections that prevented rollovers.
The bill passed 39-9, but will have to be heard again before moving to the House.
A similar bill failed in 2011 when military commanders raised objections, saying their younger service members often got into financial difficulty by taking such loans. Protections for the military built into this year's bill prompted the state's base commanders to take no position on the measure.