A decade ago, N.C. lawmakers had the good sense to get rid of payday lending, a practice so predatory that it had some N.C. residents paying $8,000 in fees on a $200 loan. Now, incredibly, some lawmakers want to bring the practice back.
Astounded? So are we.
This egregious loan-sharking practice took a while to get rid of. Payday lenders were like rabbits in North Carolina. They were everywhere. And after lawmakers banned the practice in 2001, some found a myriad of ways to keep operating. It took a 2005 court case to push the last vestiges of the industry out the door.
But theyve been lobbying to get back in ever since. Now, they have a sponsor actually three, and theyre influential. State Sen. Jerry Tillman, R-Randolph, is majority whip and education appropriations co-chair, state Sen. Tom Apodaca, R-Henderson, chairs the Senate Rules Committee, and State Sen. Clark Jenkins, D-Edgecombe, is deputy minority leader.
They say this bill has safeguards that the old payday lending system didnt have.
Tillman, who filed the bill last week, said it would cap the amount borrowed to $500 and limit the interest rate to 15 percent. But experts say that still amounts to an annual percentage rate of a whopping 300 percent for a loan repaid in two weeks.
Also under the bill, loans cant be rolled over into another loan and the lender is supposed to ensure that a borrower does not have a loan outstanding. But theres no verification requirement other than asking the borrower and there is no penalty on the lender if they make a loan to a borrower who has an outstanding loan.
Chris Kukla, senior counsel for Government Affairs for the Center for Responsible Lending in Durham, called these protections meaningless. They are.
Tillman says the bill would create a monitoring system. That oversight might fall to the Commissioner of Banks or another state agency, he said.
But heres the question: Why revive an industry that gouged consumers in the past, will still be gouging them with outrageously high-interest rates and will require significant and costly oversight to ensure it operates within the law? Taxpayers should not have to foot the bill to oversee this loan trap. Its a waste of energy and money, and absurd to even consider with the state still financially strapped.
Tillman, though, sees it as a way to help people who get in a bind from time to time. The classic example, he said, is someone who needs money to repair their car but doesnt have a credit card.
The irony here, of course, is that Tillman and his cohorts rammed through legislation that will lower unemployment benefits and prevent expansion of Medicaid for financially struggling N.C. families the very folks who might yield to the temptation of such ill-advised loans. So instead of helping poor N.C. families, lawmakers have made them more vulnerable more likely to be those persons who may need money for car repairs and find themselves financially adrift.
The bill wouldnt allow loans to military families because Congress banned payday lending to military personnel in 2007. This legislation sadly doesnt have adequate safeguards to prevent such loans to the military however.
N.C. Attorney General Roy Cooper has it right: This is the same old rip-off we ran out of our state years ago. These overpriced loans trap borrowers in a cycle of debt many cannot escape. Payday lending was a bad idea then, and its a bad idea now.