@NCCapitol

@NCCapitol

Senate passes rate hikes for small loans

Posted May 2, 2013

Money generic, dollars

— 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. 

2 Comments

This blogpost is closed for comments.

Oldest First
View all
  • miseem May 2, 5:26 p.m.

    the industry had not had a rate increase in 30 years. This comparison is not just comparing apples to oranges, it's like comparing apples to tennis balls. Not changing an interest rate is not like saying the price of a loaf of bread has not increased in 30 years, which is what they want you to think. Instead of making 18% on that $500 loan 30 years ago, they are making 18% on the $2,000 loan today. The interest rate is simply a return on the loan company's investment. If they can't make it on 18%, with the cost of money now (which is much less than it was 30 years ago), they deserve to be out of business. It's sort of like the power companies. They can get an increase if their costs go up, but only enough to guarantee their approved percentage rate of return on investment. If their approved rate of return hasn't changed in 30 years, that's not a reason to double up on gouging the public and doesn't mean the public is not paying more now than 30 years ago.

  • HeadsUp May 2, 2:05 p.m.

    This comment by a Democrat in support of what looks like a reasonable bill says it all...

    "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.