A bill that would bring back payday lending to North Carolina has attracted a powerful new co-sponsor: Senate Rules Committee chairman Tom Apodaca.
The support of Apodaca, R-Hendersonville, added to the heavyweight lobbyists that the industry has retained, makes it a bill to be reckoned with.
Im worried. I think, sadly, that this bill could very well pass, said Al Ripley, director of consumer and housing affairs at the N.C. Justice Center, an advocacy group for the poor. We are counting on the conscience of legislators, and their policy expertise, to recognize there is no good policy reason to have payday lending in North Carolina.
Payday loans, which are cash advances for workers in between paychecks, were outlawed by state lawmakers more than a decade ago.
Sen. Jerry Tillman, a Republican from Archdale and the primary sponsor of the measure, says that it is first and foremost a jobs bill.
Im trying to do something simple for everyday working people, he said.
Consider, said Tillman, that youre a working person struggling along like most people I know whose car breaks down and you dont have the money to fix it and therefore you cant get to work. Pretty soon youre out of a job.
Tillman said that the loans his bill contemplates are different from the abusive payday loans that the state prohibited.
This is a small loan, capped at 15 percent, Tillman continued. Theres no revolving loan. Youve got 35 days to pay it back. If you dont, youre finished.
The bill would permit an extended payment plan consisting of four installment payments if the borrower declares an inability to repay before the due date.
Tillman said the bill was requested by individual constituents who are struggling financially.
Ive had people ask me, said Tillman, Why cant we have another chance at (payday lending) and do it right? We have a need and cant get the money.
But advocacy groups and Attorney General Roy Cooper say that the current bill would re-institute payday loans that trap cash-poor working people into a cycle of debt that in the end can mean that they pay more in interest than they ever borrowed.
The bill would allow lenders to loan as much as $500 for up to 35 days and charge up to 15 percent interest or $15 for every $100 borrowed.
Although payday loans were outlawed by state lawmakers in 2001, some payday lenders managed to keep operating until 2006 when Attorney General Roy Cooper and the state commissioner of banks shut down the last of them.
In May 2011, Regions Bank quietly took advantage of a loophole in the regulatory landscape to launch a loan that critics charged was a payday loan, although the bank insisted it was no such thing. Last month, however, Regions Bank stopped offering the loans after being pressured by Coopers office.
Chris Kukla, senior counsel for government affairs for the Center for Responsible Lending in Durham, said the bill has what appear at first blush to be safeguards for consumers but they wont work.
He noted, for example, that the bill provides that loans cant be rolled over and requires a 24-hour waiting period between loans.
A number of other states have that provision and it does nothing to stop repeat borrowing, Kukla said. Basically what happens is that the person will gladly just come back the next day if they really need the loan, or theyll just walk down the street to a different lender and get another loan from them.
Nor, he added, is there a good way to enforce a requirement in the bill that lenders cant make a payday loan to someone who already has one.
Its an incredibly expensive loan, said Ripley. If you get a payday loan for two weeks, the annualized percentage rate will be 390 percent.
The way we compare the cost of borrowing money is the annual percentage rate, Ripley said. Now the industry likes to say youre not borrowing it for a year, youre only borrowing it two weeks, so thats not fair. What I say to that is, if I drive on the highway for 10 minutes or 48 hours if Im driving 70 miles an hour, Im driving 70 miles an hour.
Tillman called arguments about annual percentage rates a bunch of garbage they put out to scare people about the bill.
The payday lending industry has retained some of Raleighs top lobbyists to promote the bill.
Former House Speaker Harold Brubaker, an Asheboro Republican, is working for the Community Financial Services Association of America, the payday lending industry group. Brubaker, chief House budget writer last session, is new to lobbying but is expected to have considerable pull.
Former state Republican Party Chairman Tom Fetzer, who was voted the second-most influential lobbyist last session, and John McMillan, the top lobbyist in 2010, also are working for the industry.
In all, 10 lobbyists are registered to work for CFSA.
Thats the way, historically, this industry has operated, Ripley said. They hire lots of lobbyists, lots of powerful lobbyists, and they spread a lot of money around.