From an editorial in the Greensboro News & Record on Wednesday:
The war against unscrupulous lenders is a slog, not a sprint.
Lawmakers act. The industry reacts. And so on.
Take the case of payday lenders, whose stock in trade is easy money on not-so-easy terms and who are particularly prone to target members of the U.S. military. Congress passed legislation nearly seven years ago to protect service members from such outfits, but the industry has found ways over, under and around the intent of the law.
In 2007 the Military Lending Act capped most payday loans for active-duty military personnel at 36 percent interest. But lenders simply shifted their efforts to bigger, longer-term loans that are not bound by the federal rate cap. For instance, the law governs loans of $2,000 or less over terms of 91 days or fewer. So lenders simply responded with loans of more than $2,000 over longer time spans, from six to 36 months. Annual interest rates can add up to more than 80 percent.
Unintentionally, the military has made its personnel more attractive marks through a process called allotment, whereby the military automatically deducts loan repayments from the paychecks of personnel. Additionally, since the military typically frowns upon personnel who become tangled in financial debt, some service members refinance loans again and again with payday lenders, for fear that those lenders will notify their superior officers if they fall behind on payments.
For its part, North Carolina has outlawed payday lending among all consumers in brick-and-mortar stores, though attempts have been made to revive them. But that ban has little effect on online lending, which is even more insidious. The risk of collection harassment is high for online payday loans, warns the state attorney general s website, and more difficult to deal with because the collectors may be unlicensed or located in foreign countries.
Meanwhile, the industry keeps wooing sympathetic state lawmakers, who last summer passed a law that raised interest rates, borrowing limits and fees for some loans, though they at least did add special protections for members of the military.
Ideally, none of those increases should have been passed into law for anyone. All consumers are vulnerable to the more expensive terms, especially the elderly and single parents. And, ideally, lawmakers wouldnt be so easily seduced by such naked profiteering. The consumer finance industry spent more than $1.8 million to hire at least 20 lobbyists and funnel campaign contributions to legislative candidates.
As for Congress, it cant agree on much these days. But it should agree on this issue and patch the troublesome holes in the law.