North Carolina congressmen want to roll back payday regulations

Inside Subprime: May 16, 2018

By Kerry Reid

In 2001, North Carolina led the nation by banning payday loans. According to a 2016 article in the Charlotte Post, there have been no payday loans available – at least through traditional storefront lending operations – in the Tar Heel State since 2006.

However, six Republican members of Congress from North Carolina are all sponsors of a resolution that would repeal rules the federal Consumer Financial Protection Bureau are imposing limits on payday lending. According to an editorial published in the Winston-Salem Journal, the resolution, introduced by Sen. Lindsey Graham (R-SC), takes aim at CFPB rules that, among other things, require that lenders determine if borrowers have the means to repay within the term of the loan. It also establishes a cap on the number of times a borrower can take successive loans.

According to the Winston-Salem Journal editorial, offering payday loans in North Carolina was particularly attractive to lenders prior to the statewide ban “because of the large numbers of troops and veterans around the state’s many military bases.” Even after the ban went into effect, lenders sought loopholes by which they could continue to operate. The Charlotte Post notes that “Some larger payday lenders, unhappy with this action, partnered with out-of-state banks as a legal way to circumvent the law, but the state eventually ruled this practice unlawful as well.”

Online payday loans also provide a way for lenders to circumvent state regulations. In 2015, the state won a lawsuit filed in 2013 to block online lending firm Western Sky Financial L.L.C. and several of its affiliates from doing business in the state. According to an article in the Triangle Business Journal from the time, the North Carolina Business Court said that allowing the company to continue issuing and collecting loans would be “adverse to the public interest.”

Western Sky had sought to dismiss the case on the grounds that it is based in the Cheyenne River Sioux Tribe Reservation in South Dakota and therefore not subject to North Carolina jurisdiction.

As reported in a 2016 article in the Triangle Business Journal, Attorney General Roy Cooper and Commissioner of Banks Ray Grace then brokered a settlement with Western Sky and fellow online lender Cash Call to pay North Carolina consumers more than $9 million in refunds. According to Cooper’s office, the two companies and other online payday loan vendors issued more than 21,000 loans to North Carolina lenders between 2010 and 2013. The state received more than 300 complaints from consumers before filing the lawsuit.

Lenders located within the state can still make short-term loans, but the interest rate is capped at 30 percent. That hasn’t, however, stopped some financial institutions from trying to do end-runs around the law.

The North Carolina Justice Center, a research and advocacy group focused on economic and social justice, called out Regions Bank for their “Ready Advance” loan product. The Alabama-based Regions, which has six locations in North Carolina, offered short-term loans that NCJC labeled “as bad as storefront payday loans.”

According to NCJC, the “Ready Advance” loan ($500 or less) charged a fee of $10 per $100 borrowed, to be repaid in full out of the borrower’s next paycheck or Social Security deposit. If the deposits were insufficient to repay the loan in 35 days, Regions took the money out anyway, creating an overdraft for the borrower. The loans carried an average annual percentage rate, or APR, of 365 percent, according to the NCJC.

Under fire from NCJC and other consumer advocates and state leaders, including the Center for Responsible Lending and the state Attorney General’s office, Regions halted its Ready Advance program in the state in early 2013.

With the state holding firm on its no-payday-loans stance, lobbyists for the industry hope that repealing the federal CFPB rules will create more support for loosening regulations overall. For the Winston-Salem Journal, that’s moving backward. Their editorial closes with a strong stance:

“Our representatives should be supporting rules that extend needed protections to more consumers, not undermining the progress the state has made.”

To learn more about payday lending in North and South Carolina, check out these related pages and articles from OppLoans:

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