Payday loan limits passed

Monday, February 18, 2008

New Hampshire's payday lenders will likely close shop next winter. The Senate yesterday approved a tight cap on payday and title loans, a measure that supporters and detractors agree would put the industry out of business.

Gov. John Lynch will sign the bill, which has already cleared the House, a spokesman said.

The bill's supporters say that payday lenders target vulnerable people and make it difficult for them to climb out of debt because the interest rates are so high that borrowers have to take out a second loan to pay off the first one. The measure would cap interest rates on the small loans - which now top 500 percent in annual terms - at 36 percent a year. At those rates, Advance America, which has 21 locations in New Hampshire, would lose $100,000 per storefront, spokesman Jamie Fulmer said.

"It would mean we would have to close our centers," Fulmer said, adding that 200 people work in the industry statewide. "We're just extremely disappointed about today's vote and certainly are very concerned about the 200 New Hampshire residents whose jobs are at risk now."

Payday loans are weeks-long loans of $300 to $500, secured with a pay stub and paid back with a flat fee that translates to an annual interest rate in the hundreds. Title loans require the borrower's car as collateral. Sen. David Gottesman, a Nashua Democrat who supported the bill, said that a typical borrower pays back $793 on a $325 loan, "after getting mired in five or more loan transactions."

"The evidence shows that those most likely to get caught in the debt trap are those living on fixed incomes and vulnerable families feeling the national economic squeeze," Gottesman said. "The money that feeds the payday loan industry and their investors is money that could be going to pay for medicines and food and mortgage payments here in New Hampshire."

But others argued that payday loans are an option that consumers need; without them, they said, people could be driven to less-savory choices, may depend more on their towns' welfare departments or have to scrimp on necessities. Other options facing someone who's broke - such as bouncing a check - are much more costly than a title loan, they said.

Sen. Bob Clegg recounted times of struggle in the 1970s and 1980s when he had to turn to the "black market" to tide him over. "You can fail, or you can take another chance," said Clegg, a Hudson Republican. "My position, I took another chance."

He would be too embarrassed to go to a welfare office, he said, and would rather "stand tall, make my deal with them and then make my payments because that keeps me a man."
The bill's supporters include Attorney General Kelly Ayotte, Banking Commissioner Peter Hildreth, the AARP and several welfare administrators around the state.

Sen. Harold Janeway, a Webster Democrat, said the industry does at least as much harm as it does good and urged his colleagues to follow the principle of "do no harm."

Right now, New Hampshire and Rhode Island are the only New England states where payday lending is not restricted. The industry has boomed in New Hampshire since the late 1990s, when the Legislature voted to remove a 24 percent cap on interest rates. The 50 payday lenders across the state made just shy of 150,000 loans in 2006.

Before yesterday, Lynch had voiced caution about the proposal, saying he thought 500 percent interest rates were unreasonable but saying he didn't want to "ignore the need" for the small loans, which are often sought by people who've been turned away by banks. Earlier this week, Lynch said he supports a commission to study consumer credit options, a measure also passed by the Senate yesterday.

But yesterday, Lynch spokesman Colin Manning said the governor would sign the bill, which passed the Senate 13-9. The bill will go back to the House for legislators there to sign off on the one change the Senate made - pushing back the effective date until January 2009 - before it goes to the governor.

"He's also very happy that the Legislature is going to study this issue further and look at the other side of the problem," Manning said.

Source: http://www.concordmonitor.com/