Loans need nipping

September 21, 2012 

North Carolina officials thought they were rid of the predatory transaction known as a “payday loan.” The state rightly outlawed the practice in 2006 and consumers have been better off for it. But now, a bank with an out-of-state charter, working through an online loan offering (two things lawmakers may not have anticipated or felt they couldn’t regulate) has brought the issue again to the spotlight.

Payday loans are short-term, high-interest loans to people who generally couldn’t have access to credit any other way. But in signing on for such a loan, the borrower can get into a bind paying the loan off, and perhaps seek another one elsewhere. It is what North Carolina Attorney General Roy Cooper calls a “debt treadmill.” And of course, those who struggle to pay off the high interest are people who can least afford it.

While North Carolina has never been known as being particularly “consumer-friendly,” at least in the legislature, it did become something of a leader in this area.

But now, while Cooper and consumer advocates sound alarms, the payday loan threat may be reappearing in a different guise. At least, that’s what those advocates are saying about an online loan offer of “Ready Advance” loans through Alabama-based Regions Bank, which has six branches in North Carolina, including two in Raleigh.

Chris Kukla, senior counsel for government affairs at the Durham-based Center for Responsible Lending, took the gloves off in describing the loan offered by Regions, which charges a 10 percent fee on the amount borrowed. The annual percentage rate is between 120 percent and 365 percent according to the Center, depending on whether the consumer pays it off in 10 days or takes as long as a month. And if a customer wants to pay the money off in monthly installments, there’s an additional 21 percent APR interest.

Kukla says Regions is “thumbing their nose at the people of North Carolina who clearly don’t want this product in their borders.”

“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.” But it may be easier to complain about the bank than to do something about it.

Cooper defines what Regions is offering as a payday loan; the company characterizes it as money “intended to be used occasionally for emergencies.” For his part, Cooper wants to stop it, but the out-of-state charter held by Regions – and the fact that this is an online offering – complicate the attorney general’s position from a legal standpoint. Still, he should keep working on the issue with an aim to, borrowing from legendary lawman Barney Fife, “nip it ... nip it in the bud.”

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