Local & State
|Banned payday lenders eye a comeback in North Carolina|
|Activists look to close loopholes|
|Published Sunday, August 7, 2016 10:23 pm|
RALEIGH – It’s been 15 years since North Carolina became the first state in the country to end payday lending by making high interest loans illegal, and 10 years since the last businesses trying to avoid the ban were nipped in the bud.
North Carolina first adopted payday lending in 1999. Grassroots organizations and other stakeholders convinced legislators that these types of loans were not good for the state, and the law was “sunset” in 2001. Some larger payday lenders, unhappy with this action, partnered with out-of-state banks as a legal way to circumvent the law, but the state eventually ruled this practice unlawful as well. There have been no payday loans available in North Carolina since 2006.
Payday loans carry 300 percent (or more) APR interest rates and, according to N.C. Policy Watch, typically target low-income neighborhoods and are designed to trap borrowers in debt they can’t escape. NC Policy Watch states that the average payday borrower is trapped by 10 transactions in a year.
“Payday (loans) are costing people in states where it is legal… (up to) $8 billion in fees from (the) pockets of people that are living paycheck to paycheck,” said Susan Lupton, a senior policy associate with the Center for Responsible Lending.
Al Ripley, director of the N.C. Justice Center Consumer and Housing Project, said that each time a person was trapped in a back-to-back payday loan, he had to pay fees to refinance the loan and it was “devastating for families and individuals and put us in a horrible economic condition.”
“An estimated $250 million every year, by simply not having payday loans in North Carolina, is retained by our communities, (and) retained by low-income individuals who are not paying those fees,” he explained.
Recently, the federal Consumer Financial Protection Bureau released proposed rules in an effort to rein in the worst abuses of payday, as well as car title lending. Though these types of lenders no longer operate in North Carolina, the state is seeking a “strong national rule, since predators will use a weak one to seek a green light to come back into the state.”
“So now we are faced with a situation in which the CFPB is creating this rule. For states like North Carolina (this rule) is not going to eliminate protections in North Carolina, it is simply going to set a bottom baseline for protections for consumers. Our concern is that the industry will disingenuously misrepresent the rule,” Ripley said.
Tom Feltner, director of financial services at the Consumer Federation of America, said the CFPB is proposing to revamp the ability to pay requirement.
“What that means is looking at income expenses the same as you would for a mortgage, a car loan, (or) a credit card (and) to verify income, and looking at a paper pay stub (or) anything you would use to open a credit account,” he said. “How the CFPB is proposing to apply that ability to repay standard differs considerably when you are looking at a long-term loan or short-term loan; recognizing there is a very different dynamic in the loan.”
Short-term APR loans apply to loans that are 45 days or less. For longer loans, the lender will have to verify the ability to repay the loan as well as the term of the loan. The CFPB is also proposing a series of payment protection assumptions and that lenders not be able to make more than two consecutive unsuccessful attempts to debit a checking account without reauthorization. It is also proposing to limit attempts to all forms of payment methods including checks, ACH, debits, etc.
Feltner and Ripley stressed the importance of accounting for loopholes in these new rules because they want the nation to set a new bar that has fewer defaults and a stronger evaluation of income expenses.
“Specifically, we’re concerned about what is a business loophole in the short- and long-term ability to repay requirement. The ability to repay only goes so far as the lender’s ability to document that he’s seen to it that it’s been adequately enforced. Our concern is that the CFPB is setting too low of a bar for the verification of the ability to repay requirement,” Feltner said. “We simply can’t have the CFPB putting the stamp of approval on a loan cycle that could last half a year. We (also) have concerns about high, up-front origination fees that ultimately increase the total cost of borrowing.”
Added Feltner: “When we look at the trajectory of this marketplace over the last 20 to 30 years, it’s been absolutely critical to change the narrative around the ability to collect and the ability to repay (loans). Having an ability to repay standard is a huge victory, but at the same time we don’t want an ability to repay standard that is simply so weak that it makes it very difficult to enforce.”
|These loans do help when in need.|
|Posted on January 16, 2018|
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