North Carolina would let lenders charge consumers new rates for certain small-dollar loans under legislation introduced in the General Assembly, a proposal that opponents say would result in abusive fees for borrowers.
Under existing state law, lenders can make such loans for up to $15,000 apiece and at annual interest rates of up to 30 percent. Gunn’s bill would create “alternative rate” installment loans with a different set of fees for loans ranging from $300 to $1,500.
Critics of Gunn’s proposal say the fees could equate to an annual percentage rate of at least 60 percent in some cases. Opponents also say it comes just two years after the General Assembly passed legislation that allowed installment lenders to raise costs on such loans.
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Ellen Harnick, a senior policy counsel for Durham-based Center for Responsible Lending, said opposing the bill is her organization’s top priority during the current General Assembly session.
“This would be devastating to working families who are trying to achieve some measure of financial stability coming out of the financial crisis,” she said.
“The legislature has stated over and over that the priority is to create economic opportunity for working families, and this would take working families back in the opposite direction.”
Gunn’s office has declined to comment until the bill advances further in the General Assembly. The legislation, introduced late last month, has been sent to the Senate’s commerce committee.
The bill would allow loans of $300 to $1,500 to have terms of six months to two years. To make the loans, lenders could charge borrowers a fee equal to 10 percent of the amount borrowed. In addition to that fee, lenders could charge up to $5 a month for every $100 borrowed if the loan is $500 or less. If the loan is more than $500, lenders could charge up to $4 a month for every $100 borrowed.
The Center for Responsible Lending bases its 60 percent annual interest rate calculation on the monthly fee of $5, which is 5 percent of $100. The 60 percent comes from multiplying 5 percent by 12 months.
Existing state law allows various interest rates to be charged on installment loans, based on the outstanding loan balances. Existing state law also allows other fees to be charged on such loans.