June 20, 2013
Learn about a pair of stalled payday lending bills, a bill to authorize predatory car title lending bill, a just signed consumer installment loan law that raises rates and fees, and a predatory mortgage lending bill in committee in our June 2013 NC legislative update.
- Payday bills stalled (SB 89/HB 875)
- Car title lending bill stalled (HB 721)
- Consumer installment bill signed by Governor (SB 489)
- Predatory mortgage lending bill still in committee (HB 692)
Two companion payday bills, Senate Bill 89 and House Bill 875, invite predatory payday lenders back into NC. We spent years getting rid of payday lenders. Storefront and internet payday loans have been illegal in NC since 2001, when state legislators allowed the payday law to expire (sunset). Though the national payday chains continued to operate for five more years, by hiding behind a federal banking law loophole, they closed for good in 2006 because of strong state enforcement action.
"This is the same old rip-off we ran out of our state years ago. These overpriced loans trap borrowers in a cycle of debt many cannot escape. Payday lending was a bad idea then and it's a bad idea now."
These two payday bills would take us back 13 years, when 400% APR payday lenders were on every corner.
Neither payday bill met the crossover deadline, the date by which most bills must pass at least one chamber to "stay alive" in the 2013-14 session. The House payday bill could be deemed eligible for consideration through the 2014 session, beginning May 2014, because it has a fee attached to it and as a result was referred to the Finance Committee. The Senate is not bound by the House decision to consider it eligible; if it passes the House, the Senate can decide whether it qualifies for consideration in the 2013-14 session.
As we get closer to the end of this 2013 session (possibly as soon as early July), payday lobbyists are pushing hard to find a vehicle to carry their bills. They tried unsuccessfully to attach their bills to SB 489, a bill that raises rates and fees on consumer installment loans (see section below). Their strategy to piggyback onto SB 489 failed, so industry lobbyists are looking for other ways to keep the bills alive. We are monitoring all possible legislative maneuvers. Stay tuned!
Car title lending has never been legal in NC. House Bill 721 invites the predatory car title lending industry into our state for the first time. Most people in NC are not familiar with car title loans, since they have never been legal here.
Car title loans are like payday loans with a few important differences. Both are triple-digit loans, usually in the 300% to 400% annual percentage rate (APR) range. Both are typically structured as balloon payments (due in full in two to four weeks), though payday and car title lenders have also started making installment loans where they "build in the flip". But, unlike payday lenders who hold your personal check to deposit on your next payday, car title lenders hold the title and keys to your car. If you fall behind on the loan, they can repossess your car, a strong incentive to keep flipping the loan. For more information, see Driven to Disaster, our latest report on car title loans.
The car title bill, like the payday bills, did not meet the crossover deadline. As we get closer to the end of the session, their lobbyists are also pushing hard to find a vehicle to carry their bill. Though unsuccessful at attaching their bill to SB 489, we expect them to try other strategies to keep their bill alive. We have our eyes on this bill and will fight any effort to move it.
Senate Bill 489 was signed into law by Governor McCrory. This bill amends the NC Consumer Finance Act which already allowed expensive loans up to $10,000. The interest rates on most of these installment loans are blended rates, with larger loans capped at lower rates. Though the stated rates on these loans typically have been in the 20% to 30% annual interest rate (APR) range, the cost to the borrower is much higher due to expensive add-on products, like overpriced credit insurance.
Who wanted these changes?
The consumer finance industry pushed SB 489. Six large out of state lenders dominate our NC market -- OneMain Financial (a subsidiary of Citibank, currently for sale), Springleaf (the old American General, owned by insurance giant AIG and a New York private equity firm), and regional companies based in Georgia and South Carolina—Lendmark Financial, Security Finance, National Finance and Regional Finance.
No consumer groups supported this bill. CRL, the NC Justice Center, and a number of other Coalition allies worked for months to defeat the bill, which was also opposed by Attorney General Roy Cooper. Despite our efforts, the bill passed the Senate by wide margins. We pushed for its defeat in the House, but unfortunately, these efforts were not successful. We were able to achieve a small, last minute, improvement in the bill's rate increases in return for CRL and the NC Justice Center's agreement to suspend our opposition and declare ourselves "neutral" on the bill. The bill passed the House and was signed by the Governor yesterday.
What does SB 489 do?
- Increases the interest rates on almost all loans,
- Adds new and expensive fees including late fees and deferral fees,
- Allows larger loans by increasing the loan size cap from $10,000 to $15,000, and
- Does nothing to stop:
- Loan flipping - 66% of the loans made in 2011 were refinances,
- Packing in expensive credit insurance, making the loans much more expensive than the stated APR, and
- Abuses associated with liens against cars and household goods.
How will interest rates change under SB 489?
Though small improvements were made to the bill language as SB 489 progressed through House and Senate committee and floor votes, interest rate increases are significant.
In short, SB 489 allows 30% interest on loans up to $4000 (up from the current $1000 cap). For larger loans, a blended rate applies: 30% on the first $4000, 24% on the next $4000 and 18% on the next $2000 (up to $10,000).
Currently, loans are capped at $10,000. SB 489 allows loans up to $15,000, with a flat 18% interest rate cap for loans between $10,001 and $15,000 (up from flat 18% rate on loans between $7501 and $10,000 now).
Under current law, there are two rate structures available for the smallest loans, though one of the structures is rarely used and will be discontinued by this new law. The most commonly used structure permits interest rates of 30% on the first $1000, and 18% on the next $6500 (up to $7500). A small number of loans are made under a section that allows 36% interest on the first $600, and 15% on the remainder up to $3000. This section is being eliminated by SB 489.
SB 489 goes into effect July 1, 2013
House Bill 692 attempts to make North Carolina's predatory mortgage lending law consistent with changes made at the federal level as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. With a strong industry bias to make state law no more stringent than federal law, we have worked to ensure that NC did not lose protections and preserves state remedies (the ability to bring lawsuits in state court, not federal court).
This bill would change our NC predatory mortgage lending law by:
- Increasing the high cost points and fees threshold from 4% to 5%.
- Excluding VA/FHA/USDA fees. Under current law, up to 1.25% of these fees or upfront private mortgage insurance could be excluded.
- Tying the NC definition of a higher-priced home loan (called a rate-spread loan in NC) to the federal definition and protections for ability to repay and prepayment penalties. We pushed to preserve a state definition and state court jurisdiction, rather than relying solely on federal enforcement.
We support HB 692 as currently drafted. The bill is also supported by the NC Bankers Association, the NC Credit Union League, the Mortgage Bankers of the Carolinas and the NC Commissioner of Banks.
Look for a legislative wrap-up at the end of the 2013 session. Contact us with questions or requests for more information about these NC bills.