payday loans

That's what House Bill 267 wants to do. On the surface this seems like a great idea, but it's not as simple as it seems.

A payday loan works like this: You show up at one of the 50 branch offices in New Hampshire, show them your most recent pay stub and they will loan you a percentage of that paycheck, usually due back in full within 14 days. Currently there is no limit on what you can be charged for an annual percentage rate. (The annual percentage rate is all processing fees, application fees and interest charged on an annual basis.)

HB 267 would limit that rate to 36 percent APR per year; HB 620 would limit the fee to $15 per $100 borrowed. The average loan amount in New Hampshire is about $300, so under HB 620 the borrower would have to pay back $345. Under HB 267 the borrower would pay back $304.14. Needless to say, the payday loan companies say they couldn't survive on an average of $4.14 per loan.

Now some facts:

According to the New Hampshire Department of Banking, there were 149,836 payday loans totaling $55,979,409 in 2006, with an average loan amount of $374. There were zero complaints about payday lenders. That's 149,836 loans with no complaints. Now, the proponents of HB 267 say the borrowers were too embarrassed to either contact the banking department to express their outrage at this lending practice and this might, in fact, be the case. But in the same breath the proponents state that when they do away with payday lending these same people will borrow from friends, family members or churches. If they are too embarrassed to write the banking department, you can't believe that they now would go to friends to borrow this money! Sorry, this just doesn't make sense.

Proponents don't care for the high return on investment that many of these companies report in their annual filings. They forget to mention that both St Mary's Bank and Service Credit Union's "business plans" - which the bill's proponents cite as a favorable alternative - were to lose money in order to grow their base. It is a marketing strategy they hope will help grow their companies. Smart move - they can help the local community and add customers at the same time. But both stated that they would only be able to extend between $1 million and $2 million, and then they would have to re-evaluate their "business plans" in a year or two. If they did need to charge a fee of $15 on a $250 loan with an annual interest rate of 18 percent, the APR would be above the 36 percent cap. But, wait, did I forget to mention that all banks and credit unions were exempt from this bill? They can charge whatever they want. This bill only targets payday and title lenders.

Lindley Dupree spent most of this year planning a series of financial literacy classes for Flathead residents who have gotten into money troubles. So it confirmed for her that a need for the class existed when she learned some of her most vulnerable clients – many of whom were homeless not long ago – were being aggressively marketed by payday lenders for high interest, short-term loans two weeks before Christmas.

On Dec. 12, plastic bags filled with fliers advertising Advance America Cash Advance were hung on the doors of Courtyard Apartments, on Airport Road in Kalispell. Sixteen apartments there are transitional homes for people working out of homelessness. The other sixteen are permanent low-income housing. The yellow plastic bags contained balloons, pens, matches and coupons to a local pizza restaurant – along with a brochure encouraging the reader to visit Advance America for a loan of $100 or more. Advance America currently charges 521.4 percent annual percentage rate (APR), which works out to a $120 total payment after two weeks for a $100 loan

And Cuyahoga Falls, per person, has more payday lenders than in Summit County or Cuyahoga County does. Late last year, that town adopted a law that restricts cash-advance stores to one for every 10,000 people and requires them to be at least 1,000 feet apart. The town is the first in Ohio to limit the businesses based on population.

A town should get some say over which businesses set up shop within in its borders. But patchwork zoning laws won't effectively rein in payday lenders.

Statewide legislation would be a better way, and that's in the works.

Lobbyists for payday lenders call interest-rate caps an assault on the free market. Yet reasonable limits - just like the ones on other kinds of loans - are in order.

And short-term loan alternatives exist. About 40 Ohio credit unions allow customers to pay a nominal fee and take two-week loans at a rate of 18 percent. It's a cunning marketing strategy. They build a client base that grows more solvent and which then seeks more lucrative home and car loans.

State legislators plan to hold hearings this month on proposals that would curb predatory lending. The best of three bills is the brainchild of Rep. William G. Batchelder, a Medina Republican. It would cap payday-loan interest rates at a 36 percent annual rate and includes other sound features.

If the General Assembly makes reasonable rules for how payday lenders operate - and that must include a ceiling on interest rates - chances are they'll stop popping up like dandelions in the spring, without towns having to resort to zoning changes.

State Sen. John Hawkins, R-Spartanburg, is gambling that his comparison of the payday lending industry to video poker will be a winning theme in the coming session of the South Carolina Legislature.

Mr. Hawkins now represents the plaintiffs in a lawsuit against the industry, a position that a spokesman for Advance America says puts “the people of South Carolina in an awkward position.”

That little bit of marketing language aside, hinting at a conflict while none has been established, we hope Mr. Hawkins’ fellow lawmakers will have the wisdom to consider putting the brakes on an industry that drives desperate people even deeper in debt.

Sen. Robert Ford, D-Charleston, introduced a bill in the last session to outlaw payday lending. In light of the industry’s demise in neighboring states Georgia and North Carolina, it was an idea we supported, or at the very least, to put more controls on the industry’s operations in our state.

Mr. Hawkins believed the attempt to close down payday lenders completely would be vetoed by Gov. Mark Sanford, he said. That led to his support of a compromise of regulation. (He has since decided that outlawing the industry is the best choice and will support legislation to that end.) Although a Sanford spokesman said the governor “gives every bill that comes to his desk fair consideration,” we don’t think a proposal to outlaw payday lending would have survived Mr. Sanford’s pen. In a 2006 Associated Press report on the governor’s meeting with the Silver-Haired Legislature, Mr. Sanford was quoted to say he would not even support changes in the industry, after a discussion in the statehouse on regulating the interest rates the lenders are allowed to charge. In his response to an AARP questionnaire on the subject of payday lenders, Mr. Sanford continued his theme of personal responsibility and consumer choice, although he noted the use of payday lenders was “a poor choice.”