Payday lending comeback?
A bill introduced earlier this month by an area Republican legislator that would restore payday lending in North Carolina is sparking opposition from forces that drummed the practice out of the state seven years ago.
The legislation by Sen. Jerry Tillman, R-Randolph and Senate majority whip, would allow a new version of the loans that people receive based on the commitment of a paycheck. Advocates for payday lending say it provides an option for people with limited credit to get access to money quickly for unexpected needs.
But critics, who convinced state legislators to end the practice last decade when Democrats then controlled the N.C. General Assembly, say payday loans unfairly take advantage of low-income people and force them to repay the loan at excessive interest rates. Democratic state legislators allowed an experiment with state-sanctioned payday lending from 1997 to 2001, but let the authorization expire 12 years ago after complaints from consumer advocates.
A handful of payday lenders tried other approaches to keep making loans after the state authorization expired. The practice was legally eliminated in 2006 when Democratic Attorney General Roy Cooper reached an agreement with remaining lenders to stop extending money in North Carolina.
Tillman’s Senate Bill 89 would allow the practice of what’s called “deferred presentment services,” which is the title of the legislation. The bill would amend the state’s check cashing statute to allow payday loans by check cashers, said Al Ripley, a representative with the N.C. Justice Center out of Raleigh.
A liberal-leaning policy group, the N.C. Justice Center calls the proposal “legalized loan sharking.”
“This bill opens the door right back up for payday lending in North Carolina,” said Chris Kukla, a representative with the Durham-based Center for Responsible Lending, which also is critical of the legislation. “We kicked predatory payday lenders out of the state a decade ago. It makes no economic sense to let them back in.”
But Tillman told The High Point Enterprise that his legislation would fill a need for lower-income people who need money in an emergency but don’t have the credit history to secure a loan otherwise. Restrictions and limitations in the bill would keep the practice from becoming exploitative as happened before, he said.
An individual applicant could apply for no more than $500 per loan, and the maximum total fee assessed per loan would be $75, or 15 percent, Tillman said. Without payday lending, he said, people are having to take black market routes that cost them much greater sums in fees and interest, he said.
However, the Attorney General’s Office objects to the effort to restore payday lending.
“Senate Bill 89 would amend the Check Cashing Licensing Act to allow a check casher/lender to pay out cash loans of up to $500 for a fee of 15 percent of the cash advance,” Cooper said in a statement. “On a typical loan repayable in two weeks, the annual percentage rate would be more than 300 percent.”
Tillman disputes the contention that a borrower would endure a more than 300 percent payment obligation, saying his bill limits the payback to no more than $75 for a maximum payout of $500.
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Brief history of payday lending
Prior to 1997, payday lending was illegal in North Carolina. In 1997, the N.C. General Assembly, then controlled by Democrats, enacted a four-year experiment with payday lending. Approximately 1,000 outlets started making payday loans. Facing public opposition and criticism from consumer advocates, state legislators let the law expire that permitted payday lending.
However, some payday lenders tried to alter their practices and remain in the business. N.C. Attorney General Roy Cooper then initiated a series of legal actions that played out over several years to halt remaining payday loans, which by then were being made almost exclusively by out-of-state companies. In March 2006, the Attorney General’s Office secured an agreement that closed out the last payday lending.
Source: Center for Responsible Lending