Payday and Title Loans in North Carolina: Subprime Report
- Nickname: Tar Heel State
- Population: 9,940,828
- Website: https://www.nc.gov/
North Carolina is known for its wide range of natural vistas, from the Appalachian Mountains in the west, the hills and plateaus of the Piedmont region in the central part of the state, and the eastern Atlantic seaboard, home to the barrier islands of the Outer Banks and treacherous Cape Hatteras, the “Graveyard of the Atlantic.” In modern times, it’s also become famous as a center for technology in the Research Triangle Park area of Raleigh, Durham, and Chapel Hill. Charlotte, the Tar Heel State’s largest city, is the third-largest banking center in the country, behind New York City and San Francisco.
But North Carolina’s poverty rate – 15.4% in 2016 – is the fourteenth-highest in the nation (including all states plus the District of Columbia). And like many other areas of the country, the state has yet to fully recover from the effects of the recession 10 years ago.
In most states, people who are facing gaps between expected income and immediate expenses – rent, groceries, auto repairs, or emergency healthcare – can go to a storefront payday loan operation and borrow money on a short-term, high-interest basis. These loans may seem like a great option, particularly if a borrower doesn’t have a line of credit or relatives to turn to for a loan. But payday loan shops have been outlawed in North Carolina since 2001.
Payday Loans in North Carolina
Payday loans are used by borrowers to get access to fast cash to cover shortfalls in their budget until their next paycheck – hence the name. If you’ve gone by a storefront advertising something like “Fast Cash! Instant Approval!” then you know what a payday loan operation looks like. Typically what happens is that someone who needs money quickly will go to a payday loan shop, write a check for the amount needed plus the interest and fees, and walk out with the cash. The check (or in some cases, approval for an automatic withdrawal from a checking account) is dated for the borrower’s next payday.
Unfortunately, in many cases, people find themselves caught in a “debt spiral” where they can’t cover the amount of the original loan on time. So they take subsequent loans to cover the original one, with yet more fees and interest piling up. The annual percentage rate, or APR, on a payday loan of $100-$500 can run from 390 to 780%. About 12 million Americans take out payday loans every year, spending close to $9 billion on fees.
The History of Payday Loans in North Carolina
From 1997-2001, North Carolina exempted payday loan operations from restrictions in the state’s usury laws. That exemption ended by bipartisan agreement in 2001. The North Carolina Commissioner of Banks and the Attorney General eliminated the last of the payday storefront operations, and the state hasn’t had any brick-and-mortar loan shops since 2006. But that doesn’t mean traditional lending institutions haven’t tried to peddle short-term, high-interest products through loopholes.
For example, Regions Bank, which has six locations in North Carolina, offered “Ready Advance” loans. These loans of $500 or less charged a fee of $10 per $100, to be paid out of the borrower’s next paycheck or Social Security deposit. If the borrower didn’t have the funds to repay at the end of the 35-day term, Regions would take the money out anyway, creating overdrafts and even more fees for the borrower. These loans carried an APR of 365%. After pushback from consumer advocacy groups in North Carolina and the Attorney General’s office, Regions halted its Ready Advance product in 2013.
Unfortunately, online lenders are far harder to regulate. North Carolina filed suit against five online lending operations in 2013, charging that their high interest rates violated state law. One of these lenders, Western Sky Financial, let borrowers get money online and through a toll-free number, offering loans from $850-$10,000 and charging interest from 89.68% to 342.86%. Borrowers had to repay in monthly installments over periods lasting from 12 to 84 months.
In 2015, the North Carolina Business Court banned the companies from doing business in the state. The court also canceled existing loans, ordered the companies to stop collecting on loans made to North Carolina consumers, required that negative credit information be removed from borrowers’ credit reports, and required the companies to pay over $9 million in refunds.
North Carolina Payday Loan Rules and Regulations
The federal Consumer Financial Protection Bureau, or CFPB, also imposes national regulations on payday lenders, including requiring them to determine if borrowers have the means to pay back loans within the original terms and establishing a cap on how many times a borrower can take successive loans. These rules have been under fire in Congress through legislation introduced by Sen. Lindsey Graham (R-SC) and supported by several members of the North Carolina Congressional delegation.
Even without walk-up operations and with crackdowns on online lending, a simple Google search shows that there are still companies offering online financing for North Carolina residents. The Attorney General’s office also offers information on a number of other predatory lending scams to watch out for. These include asset-based lending, in which a lender promises to make a loan against the equity in your house. If you can’t make the payments, you could end up in foreclosure. Unscrupulous lenders will also “pack” loans with hidden fees, such as credit loan insurance, without telling you, and add in hidden “balloon” interest fees that add up to much more than the projected cost of the original loan.
The best way to protect yourself is to read all the loan documentation carefully so you know exactly what the repayment terms are, make sure the lending institution is licensed, and contact nonprofit credit counseling agencies, such as the National Foundation for Credit Counseling, to make sure you don’t get in over your head with an emergency short-term loan. In many cases, finding other ways to save money or seeking short-term loans from family or friends will be a better option than getting on the “debt treadmill” of a high-interest, short-term loan.
Title Loans in North Carolina
Another form of short-term lending that has been outlawed in North Carolina are auto title loans. These are loans where the borrower, as the name suggests, puts up the title to a vehicle as collateral. The problem, of course, is that if the borrower can’t repay the loan in the agreed-upon time, they can lose the vehicle – which may be the only source of transportation they have for getting to work in the first place.
The History of Title Loans in North Carolina
In 2016, then-Attorney General Roy Cooper took aim at one such lender doing business under several different names in the state. The state’s lawsuit alleged that the companies charged consumers with average interest rates of 257% on loans of $1,000 to $2,500. However, even without auto title companies operating in North Carolina, it’s still possible for residents to drive over the border to other states, such as South Carolina or Virginia, that offer high-interest title loans. Once again, the risks involved may very well outweigh the short-term benefit of getting the quick cash.
Regulating Payday and Title Loans in North Carolina
If you live in North Carolina and need emergency cash, it’s still possible to obtain small loans through licensed borrowers, such as a traditional bank or credit union. These loans have a legal cap of 30%. By contrast, neighboring Tennessee sees interest rates as high as 460% with payday loans. Pawnshops are also legal in North Carolina, though as with title loans, if you can’t make the payment by the end of the term of the loan, you risk losing whatever valuables you’ve put up for collateral. In any case, as with other lending operations, make sure you understand the terms of the loan and that the pawnshop you’re using is licensed by the state.
So if you live in North Carolina and need emergency cash, what are your best options without falling into a debt spiral? Again, the first thing to do is to figure out how much you need and where you might be able to get the cash without falling prey to high-interest loans or other schemes. Can you work out a payment plan with your creditors? Can you get an advance on your paycheck? Do you have a credit card with a line of credit sufficient to carry you over the unexpected shortfall? (In most cases, even a high-interest credit card is going to be cheaper in the long run than a payday loan.) Do you have friends or family members who can help you make up the shortfall?
There are also nonprofits, such as Modest Needs, that provide small gap loans to low-income individuals in crisis, or who will make payments directly to creditors.
How to Report a Predatory Lender in North Carolina
If you have questions about lenders in North Carolina or suspect that you’ve been the victim of a predatory lending scam, there are ways to get help. Current Attorney General Josh Stein’s website lists a number of ways to fight back. The North Carolina Commissioner of Banks can tell you if you’re working with a legitimate and licensed lender. And the Better Business Bureau also has several locations in the state that monitor consumer complaints.
Office of the Attorney General Consumer Protection Unit
Phone: (877) 566-7226 or (919) 716-6000
North Carolina Commissioner of Banks
Phone: (919) 733-3016
The Better Business Bureau
Website for BBB Locator in North Carolina: http://www.ncdoj.gov/Consumer.aspx
Call for Action – A national network of volunteers assisting consumers with filing complaints and avoiding scams. Call for Action coordinates with local, state and federal agencies.
File a complaint online: https://cfadatabase.org/cfa/submit-a-complaint.aspx
Guides to Payday and Title Loans in North Carolina Cities
Check out our financial resource guides for the following North Carolina cities:
Charlotte | Raleigh | Asheville