Would a loan by any other name cause as much apprehension?
Perhaps.
State Senate Bill 89 calls it “deferred presentment,” but most people refer to the practice as payday lending. It’s been illegal in North Carolina since legislators allowed the payday lending law to expire on Aug. 31, 2001, and the last companies in the state closed shop as of March 1, 2006.
But with significant turnover in the General Assembly and a new governor, payday lending companies have intensified their push to come back. On Feb. 13, Sen. Jerry Tillman, R-Randolph, submitted a bill to do just that, and it’s drawn the support of influential Rules Committee chairman Sen. Tom Apodaca, R-Henderson.
Tillman has been quoted saying the bill is about creating jobs. Supporters also claim payday lending is necessary to help disadvantaged people manage expenses in a way in which they would not, otherwise.
“I do anticipate that if it were legalized again we would see payday lenders moving back into the state, so there would be some job creation there,” said Jon Sanders, director of regulatory studies for the John Locke Foundation. “Overall, for consumers, it would expand the lending market options, especially for those who have the fewest options available to them.
“Right now, about 5 percent of North Carolinians are taking out payday loans, but they’re either going online to do so, or they’re going across the border, if they live close to Virginia or South Carolina.”
There were 902 payday lending stores in the state before the law was allowed to sunset.
Typically, payday lending customers are those who lack enough credit, income or both to attain a traditional loan. They write a check to the lender for the loan amount plus a fee, with an agreement the check won’t be cashed until 15-30 days after it’s written. S.B. 89 institutes a $15 fee per $100 borrowed.
The renewed push for legalization has drawn attention from the AARP, NAACP and other groups who believe payday lending is predatory on low-income borrowers, pulling them into a never-ending cycle of debt and leaving them worse off than they were before.
As well, payday lenders have been accused of taking advantage of members of the military. While S.B. 89 bans giving payday loans to service members, that ban doesn’t extend to other members of the family.
“It definitely means the individuals who get the loans will have less money to spend, because they’re spending so much money on fees,” said Al Ripley, director of Consumer and Housing Affairs at the N.C. Justice Center. “And that also means you’ll have a negative impact in the community, because your local economy is also going to hurt because people are going to have less money. So, it has a lot of negative impacts like that.”
Ripley said that once one loan is received, some people have trouble paying it off so they take out another loan. The bill contains measures to prevent people from falling into that trap, such as capping the loan amount at $500, capping the fee at 15 percent of the loan amount, requiring a 24-hour cooling off period after paying off one loan to take out another and allowing one loan a year to be entered into an extended payment plan.
But, the measures aren’t fool-proof.
“In the states that have this law in place, the average borrower gets nine loans a year, and up to one-third of those borrowers end up getting 14 loans a year,” Ripley said. “So, even with what the industry calls ‘consumer protections’ in place, people end up getting trapped in loans that have 391 percent APR and end up getting multiple loans a year.”
Multiple studies show consumers are against the legalization of the high-interest loans. According to a study conducted by the Pew Charitable Trusts this year, though, many of those same people like having payday loans available to them.
“They liked the fact they weren’t putting their credit at further risk, they didn’t have to deal with bankers, or sitting in a long line and having people go over their credit history and being embarrassed,” Sanders said. “Or, having to go hat-in-hand to family and friends, or an employer. Or have creditors calling them on the phone and harassing them. It’s a real trade-off, and I think that’s what it costs, was that it was a trade-off.”
Sen. Don Davis, D-Greene, sits on the Commerce Committee, but hasn’t explicitly ruled out supporting the bill.
“I’m not excited about the bill,” Davis said. “As the bill is currently drafted, it actually extends protections for consumers through the provisions that would prevent revolving loans and set it at one loan until it is paid off, and actually putting in a database to manage that.
“So, it is a step in the right direction in terms of protecting consumers. At the same time, it is important, I believe, to regulate such loans.”
Unlike other high-profile proposals this year in the General Assembly, payday lending doesn’t have the full support of the Republican majority and the governor. Gov. Pat McCrory publicly came out against the bill in February, and some legislators aren’t eager to refight issues thought to be settled years ago.
“At this point in time, I’m not in favor of the bill,” Sen. Louis Pate, R-Wayne, said. “I think it hurts, especially, young military people. It really does not help them at all, and I just don’t know that we need to be delving into that right now. It was a long battle several years ago to get rid of it, and I’m not sure we’re ready to take it back just yet.”
Wes Wolfe can be reached at 252-559-1075 or wes.wolfe@kinston.com. Follow him on Twitter @WolfeReports.
Breakout box:
Senate Bill 89, ‘Deferred presentment services’
- Primary sponsor: Sen. Jerry Tillman, R-Randolph
- Co-sponsors: Sen. Tom Apodaca, R-Henderson; Sen. Clark Jenkins, D-Edgecombe
- Passed first reading
- Referred to Senate Commerce Committee