Consumer advocacy groups and state officials are complaining that payday loans, which were eradicated in North Carolina a half-dozen years ago, have resurfaced.
The consumer groups are protesting that Alabama-based Regions Bank – which has six branches in North Carolina, including two in Raleigh and three in the Charlotte area – has managed to sidestep the state’s usury laws and offer a loan product that they view as predatory and pricey.
They also worry other banks will follow Regions’ lead and offer payday loans of their own.
Meanwhile, state Attorney General Roy Cooper is looking for a way to shut down Regions’ Ready Advance loan, which he considers to be a payday loan.
“We do not want North Carolina consumers subjected to payday loans,” Cooper said. “Payday loans are like a consumer needing a life preserver being thrown an anvil. It gets them on a debt treadmill, oftentimes.”
Regions Bank contends its Ready Advance loan is different from a payday loan and fills a customer need.
“One of the things we believe is very important is we want to make sure our customers do have access to credit,” said spokeswoman Evelyn Mitchell. “Certainly, we do believe that this is an expensive form of credit. It is intended to be used occasionally for emergencies.”
North Carolina was the first state in the nation to shut down payday-lending outlets. After a law that authorized payday lending was allowed to expire in 2001, some payday lenders continued to operate by forming partnerships with out-of-state banks, which they argued exempted them from North Carolina law.
Cooper went after the state’s largest payday lender, Advance America, and then-Banking Commissioner Joseph Smith ruled in December 2005 that the company was charging excessive rates in violation of state law. The remaining payday lenders agreed to shut down in March 2006.
Chris Kukla , senior counsel for government affairs at the Center for Responsible Lending, complains that Regions is “basically thumbing their nose at the people of North Carolina who clearly don’t want this product in their borders.”
Cooper said that Regions’ out-of-state charter – and the fact that it is only offering the Ready Advance loans online – potentially poses legal obstacles in the state’s effort to halt the loans.
“Over the years, payday lenders have used tricks to get around the law,” he said. “We are in the preliminary stages of looking into this.”
The Federal Deposit Insurance Corp. also told a coalition of consumer groups in May that it is investigating banks’ “advance” loans that are structured like payday loans and undermine state laws that prohibit them.
“We could foresee working with the FDIC on this matter,” Cooper said.
Regions Bank’s loan, which is available only to online customers who have had a checking account for at least nine months, charges a 10 percent fee – $10 for every $100 borrowed.
Although that appears on the surface to be cheaper than the interest consumers pay on credit cards, the annual percentage rate clocks in at between 120 percent and 365 percent, according to the Center for Responsible Lending. The APR varies depending on whether the loan is repaid within 10 days, as is typical, or whether it takes as long as one month to repay.
The rate doesn’t include an additional 21 percent APR interest if a Regions customer chooses to pays in monthly installments.
Regions: ‘It is not a payday loan’
“It is not a payday loan,” said Mitchell, the bank spokeswoman. One of the differences, she said, is that “we don’t allow people to roll that loan over. You can’t take out another loan to pay back your existing loan.”
Regions introduced the Ready Advance loan in May 2011 in all its markets, including North Carolina. Regions has more than 1,700 branches in 16 states.
Mitchell declined to disclose how many Regions customers in North Carolina have taken out Ready Advance loans but said “it’s certainly not a significant number.”
Concern that others will follow
Al Ripley, director of consumer and housing affairs at the N.C. Justice Center, said that in recent years other banks that offer payday loans elsewhere have considered making them available in North Carolina, but have opted against it. But he worries that could change now.
“Other banks might look at it and say if Regions has taken the reputational hit for offering a predatory product in North Carolina, then if we go and do the same thing we don’t look quite as bad,” he said.
Ripley added: “I think consumer advocates would agree, A, this is a payday loan and, B, payday loans are bad for people. All you are going to do by offering this product is put people further and further into debt that they can’t afford.”