Payday loan system revisited by legislators

Members of the N.C. General Assembly are proposing to revive a controversial lending practice that has virtually lain dormant for more than a decade.

Advocates of the practice — known as payday lending — say the ability to obtain quick loans, with new consumer protections, would aid low-income residents during a slow economic recovery.

But opponents of the measure counter that the loans could trap residents in a cycle of debt — the same reason the practice was previously banned.

Payday lending allows people with a job and checking account to pay immediate expenses by taking out small, short-term loans before their next paycheck. The legislature banned it in 2001.

“The demand (for the loans) has never gone away in North Carolina,” said Jamie Fulmer, regional spokesman for Advance America, a national payday lending firm.

Sen. Jerry Tillman, R-Randolph, introduced Senate Bill 89 last week, which would enable residents to borrow up to $500 and cap the interest rate at 15 percent on every $100 borrowed.

North Carolina is one of 12 states that prohibits the practice.

Fulmer said the bill would provide a simple, transparent and cost-efficient credit option for N.C. residents.

“(People) get to a point in time where they have more month left than money,” he said. “They’ll be able to use this loan to bridge that gap.”

Before the practice was banned, some borrowers had taken out new loans to pay off old ones and paid high interest fees on all of them, said Pat McCoy, executive director of Action N.C., a community advocacy group that opposes the bill.

But specific consumer protections, such as preventing people from continuously rolling over loans to postpone repayment, are important aspects of the new bill, Fulmer said. In 1999, about $80 million in renewal fees was charged by lenders.

“This option will be safe and regulated while meeting customers’ needs,” he said.

After graduation, students could take out payday loans to help pay off college debts, Fulmer said. But he said payday lending might not be the best option to deal with student loans.

UNC sophomore KJ Moon, a biology and economics major, said he understands why people would turn to payday loans for a quick financial fix.

But he said he would never take out a payday loan to pay a bill — and would opt instead to put the bill on a credit card or borrow money from family or friends.

“I think they should be avoided,” he said. “It’s a very devious way to keep the poor poor.”

Al Ripley, director of the consumer and housing project at the N.C. Justice Center, said payday lending would disproportionately harm poor and elderly residents.

He also said he’s concerned about the influence of almost a dozen lobbyists working for the lending industry.

“It tends to result in legislation being adopted that’s not in the best interests of the state,” he said.
Support from lobbyists and the N.C. Senate bodes well for the return of payday loans, said Kevin Rogers, Action N.C.’s policy and public affairs director.

The bill could come to the Senate floor for a vote early next week, Rogers said. The bill is currently in the Senate’s commerce committee.

Still, McCoy said he is optimistic about the possibility of maintaining North Carolina’s ban on payday lending.

“A lot of people feel like this is something we might be able to beat back,” he said.

“This state has been a leader in (banning the practice), and going backwards doesn’t make sense.”

Contact the desk editor at state@dailytarheel.com.