Consumer Finance Loans

Consumer Finance Loans

The effective APR on the smallest
of these loans can exceed 50%

The Office of the Commissioner of Banks licenses and regulates the business activities of loan companies that make consumer loans of $10,000 or less under the North Carolina Consumer Finance Act.

When you add the fees with the interest rates, the effective APR on the smallest of these loans can exceed 50%. And too often, expensive insurance products are sold with these loans as well.

For many years, consumer finance companies have tried to convince the NC General Assembly to increase the rates and fees on these loans. In the fall of 2009, the House Study Committee on Unbanked and Underbanked Consumers focused solely on the consumer finance companies. In the report the study committee recommended no changes to the law.

Under this act, consumer finance companies in North Carolina make small consumer loans under a graduated interest rate and fee cap. Under the section of the law that the vast majority of consumer finance companies use, the companies can charge:

  • 30% interest on the balance up to $1000,
  • 18% interest on the balance between $1000 and $7500, and
  • 18% interest on the entire balance between $7500 and $10,000,
  • A $25 processing fee on loans less than $2500, limited to twice per borrower in a 12-month period, or
  • A processing fee of 1% of the loan amount, up to $40, on loans more than $2500 limited to twice per borrower in a 12-month period.

In spring 2010, the Joint Legislative Study Commission on the Modernization of North Carolina Banking Laws and the Consumer Finance Act considered a proposal to add late fees to these loans, a change that would have cost NC consumers an additional $25 million per year, but chose not to pursue it. In its report, the study commission directed the NC Commissioner of Banks (NCCOB) to continue studying this issue and report back to the 2011 session of the NC General Assembly. The NCCOB’s report & recommendations were submitted to the General Assembly in February 2011. In short, NCCOB did not recommend increases to the rates and fees on these consumer installment loans. You can read the entire report or our summary points here.

Despite this fact, House Bill 810 was introduced during the 2011 session of the NC General Assembly. This bill, which passed the House in 2011but died in the Senate in 2012, would have significantly increased the rates, fees and size of installment loans in NC, blowing the cap on our state usury limit.

Learn more about HB 810