Installment loan bill headed to NC House floor
RALEIGH, N.C. (AP) — A North Carolina House Committee unanimously endorsed a bill Thursday raising borrowing limits and interest rates on installment loans, putting the measure a step away from the governor's desk.
The House Banking Committee signed off on the bill after its chief sponsor backed an amendment softening the interest rate increases. That was enough to win the neutrality of two watchdog groups, but the state attorney general and others still maintained the bill would encourage endless debt for poor people.
Installment loans are often pursued by people with poor or nonexistent credit history who can't obtain credit cards or types of loans that require collateral. Riskier payday loans remain illegal in North Carolina, though a state senator submitted a bill earlier this year reopening the state to the industry.
The bill, which already passed the Senate with bipartisan support, increases the maximum loan amount to $15,000 from $10,000, allows consumers to defer payments at a cost of 1.5 percent of what's owed that term and charges $15 late-payment fees.
Interest rates for loans of up to $10,000 currently stand at 30 percent for the first $1,000 and 18 percent for the remainder of what's owed. The amended bill would charge 30 percent interest for the first $4,000, 24 percent for the next $4,000 and 18 percent for the remainder of the principal. Those rates previously stood at 30 percent for the first $5,000 and 24 percent for the next $5,000.
Sen. Rick Gunn, R-Alamance and the bill's lead sponsor, said the industry's rates haven't been adjusted for 30 years and about half of the companies still around operate at a loss even after shedding a third of employees over the past decade. Besides that, lawmakers have made a number of concessions, leading to a 39-9 vote in the Senate and the end of opposition from some consumer advocates.
Representatives from both the North Carolina Justice Center, which advocates on behalf of low-income residents, and the Center for Responsible Lending told the committee their groups will remain neutral on the issue. Also remaining neutral is the North Carolina Commanders Council because of protections for military service members written into the bill.
Those changes weren't enough for Laura Collins Britton, a law professor at the University of North Carolina specializing in consumer financial transactions. In practice, she said, desperate people look to installment loans to refinance another debt and get caught in a spiral because the new loan barely covers what they already owe and comes with additional insurance costs that dupe many consumers, she said.
The state Justice Department also opposes the bill, arguing what remains of the industry is growing without new costs that could further exacerbate debt problems among low-income people.