The storefronts were seductive. They promised easy cash when you needed it most, and it was a breeze to qualify.
But like many seductive things, payday lenders in North Carolina were dangerous. They trapped their customers in a cycle of debt, charging them exorbitant fees and locking them into loans they could never pay back.
The state wisely outlawed them, and the last ones closed up shop in 2006. North Carolinians have saved more than $1.2 billion in fees – and avoided digging deeper holes for themselves – over the past eight years, critics of the industry say.
Now the lenders, who still operate in 35 states, want back into North Carolina. They hired some 20 lobbyists in the last legislative long session, and with Speaker Tim Moore and other new leadership atop the House they might be sniffing an opportunity to slither their way back in. Legislators shouldn’t entertain the thought for a moment. The industry’s predatory tactics were all about generating huge out-of-state profits at the expense of North Carolina’s working poor.
The companies and their backers say they provide a valuable service to 12 million Americans a year: quick cash to help a customer in a temporary tight spot.
But here’s how it really works: The lenders usually charge interest rates of around 400 percent APR. They grant loans regardless of the person’s ability to pay them back while covering their living expenses, and they put themselves first in line for payment. They require repayment in one lump sum, not installments. About 75 percent of their revenue comes from people who churn through more than 10 loans a year. The typical customer pays $800 for a $350 loan. The companies themselves have revealed that their business model depends on trapping customers into borrowing money again and again.
It all adds up to the working poor going deeper into debt. Studies show payday-lending customers are more likely to get behind on other bills, delay medical care and ultimately file for bankruptcy.
Congress recognized the predatory nature of the industry and in strong bipartisan fashion in 2007 capped interest rates at 36 percent APR on loans made to active military members and their families. It was right for our armed forces, and it’s right for everyone else.
It’s not a partisan issue. Many Republicans and Democrats alike oppose the practice, and some in each party support it. Whether you’re morally offended by a 400 percent interest rate or just see the damage it does to those who can least afford it, there’s a lot not to like.
Congress should ban the practice nationwide. Until that happens, the Consumer Financial Protection Bureau should install rules banning some of the most nefarious practices. And North Carolina legislators should stand firm and tell payday lenders: We don’t want your money.