The state Senate preliminarily approved by a wide margin a bill that would raise the interest rates for many consumer finance loans.
But opponents of the bill won a concession Thursday an amendment that reduced interest rates for the largest loans compared with what the original bill provided. The amended bill must be approved a second time before being considered by the House.
The bill was approved 39-9, with all but one of the no votes cast by Democrats. Eight Democrats also voted in favor of the bill.
Consumer finance companies such as OneMain Financial and Springleaf make loans to consumers who typically have a poor credit history that limits their options. Today such loans are capped at $10,000 in North Carolina, but the bill would raise the ceiling to $15,000.
Supporters of the bill defended the new rate structure the bill calls for, arguing the industry is ailing because the rates its permitted to charge have remained the same for 30 years while the cost of doing business has steadily risen.
Opponents countered the companies are prospering while charging rates and fees so steep that many consumers get caught in an unrelenting cycle of debt. They also contend the difference between the companies cost of capital and the rates they charge consumers has probably never been greater given the record low interest rates that prevail for credit-worthy borrowers.
The original bill presented to the Senate proposed reducing the maximum rate permitted for small-dollar loans but raised rates for most loans. It called for a 30 percent interest rate on loans of up to $5,000; a 24 percent interest rate for the next $5,000 (that is, a $10,000 loan would carry a 30 percent interest rate for the first $5,000 and 24 percent for the remainder); and 18 percent for loan amounts between $10,000 and $15,000.
However, Sen. Rick Gunn, a Burlington Republican and one of the primary sponsors, introduced an amendment to reduce the rate on loans of between $10, 000 and $15,000 to a flat 18 percent eliminating the original bills stepped approach that would have included higher rates for the first $10,000. The amendment passed unanimously.
Gunn said he was offering the amendment as a conciliatory move after an amendment that called for a major rate reduction was defeated.
Ken Kinion, president of the N.C. Financial Services Association, said the industry accepts the amendment. .
The industry is pleased to work with senators (and) their concerns, he said.
Consumer advocacy groups havent softened their opposition, however.
We know the vast majority of loans made now are under $5,000, so the vast majority of borrowers will gain no benefit from the amendment, said Al Ripley of the N.C. Justice Center.