Pay Day Lending

[Professor]

PAYDAY LENDING
Legislators have been wrapping themselves in the American flag with symbolic gestures since the 2003 session began. In the coming weeks, however, they'll have a chance to do something meaningful for those who serve in the U.S. military. They can side with soldiers and other low-income consumers against an army of loan-shark lobbyists. Two bills currently before the state House would revive state-sanctioned payday lending in North Carolina.

One would make loan sharks happy because it would allow them to continue to prey on their customers with interest rates of close to 400 percent. The other bill would reform the short-term lending industry and still bring lenders interest rates of 60 percent.

For legislators, this truly is a choice for or against the men and women who defend this country. That's because payday lenders know that Uncle Sam's underpaid soldiers, sailors, marines and airmen are often short on cash. The payday lenders have set up many of their loan-sharking operations near military bases so they can exploit the hardships that these young people often face.

Payday lending is nothing more than a floated check. The lenders cash postdated checks from their customers, giving them 85 cents on the dollar. Two weeks later, they cash the check for full value. In the process, the lenders make 15 percent interest in 14 days. That's approaching 400 percent a year.

Payday lending was legal in North Carolina until two years ago, when the General Assembly refused to reauthorize the law permitting it. Several lenders continued to operate despite warnings from Attorney General Roy Cooper. They say that their federal charters allow them to remain in business.

There's no question that a legitimate short-term lending industry is needed. People run out of cash and need such loans. So legislators would like to find a way to reauthorize the lending.

Rep. Bill Culpepper, a Democrat of Edenton, the powerful chairman of the House Rules Committee, and Rep. Robert Grady, a Republican of Jacksonville,are siding with the payday lenders.

They have filed legislation that would allow, at most, a $40 fee on a two-week loan of $300. That's only a little better than the law that existed previously. Other elements of this bill, however, do offer improved consumer protections.


Rep. Julia Howard, a Republican of Mocksville, has teamed with three other representatives, of both parties, to propose a lending bill that is much friendlier to all consumers, including those in the armed forces. In addition to consumer protections, the Howard bill proposes a maximum $45 fee on the $300 loan, but it allows the borrower as much as 90 days to repay. That drops the annual interest rate to 60 percent.

Considering that state law now allows no loan greater than 36 percent, the Howard proposal of 60 percent is still enormously generous to the short-term lending industry.

There's no telling when, if ever, legislators will debate the bills.

Here's hoping, however, that they will have America's military personnel in mind when they vote. This is a chance to do something really important for those who serve.