Our top priorities for the 2017 NC General Assembly session were to keep payday and car title lenders out of North Carolina, to defend our strong debt buyer and debt collection protections and our strong mortgage lending protections, and to look for opportunities to strengthen other lending protections while guarding against any proposals to weaken them.
This 2017 session of the NC General Assembly was dominated by attempts to weaken Gubernatorial powers, address fallout from the “bathroom bill”, and redraw state district maps under court order. But legislators still found time to help predatory lenders by pushing bills to weaken our North Carolina lending protections. With a few small exceptions our Coalition was able to stop these bad bills.
Why were the payday lenders quiet this session?
As we look at how we fared during this 2017 NC General Assembly session, it is important to note that the payday and car-title lenders did not come knocking on our North Carolina door this year – an unusual and tremendous victory. They stayed away for several reasons. First, they know the force of our NC Coalition, the hundreds of groups willing to go to the mat to keep these triple-digit lenders out of our state. Second, they are waiting for the Consumer Financial Protection Bureau (CFPB) to issue its final national payday rule, which we expect any day. The payday lenders will challenge this final rule in the courts as well as in the halls of Congress with a resolution to roll back all payday regulation. When the rule goes into effect, the payday lenders will surely be back in North Carolina arguing that we should make our North Carolina small loan laws conform to this new (weaker) national standard. We will be ready when they return.
Bad Bills That Failed
Bills to Roll Back Protections Against Manufactured Home Dealer Abuses
Senate Bill 522/ House Bill 685 would have weakened protections for consumers buying a manufactured home directly from the manufactured home dealer. These bills would have eliminated protections that require manufactured home dealers to:
- Document all the money that changes hands in the deal, and
- Allow the borrower to get his or her money back if the financing falls through.
This bill only required the dealer to record the consumer’s initial deposit (defined as any money paid within the first three days of signing the purchase agreement), rather than all deposits and payments collected from the consumer. This lack of an official record of all the money that has changed hands in the transaction would make it much harder for the consumer to be made whole if the deal falls through. Also, because the bill removed the requirement that the purchase agreement include the financing terms, if the financing falls through, the borrower may not be able to secure financing, may lose his or her deposit money and other payments, and may become the victim of other predatory lending practices. Further, the bill also provided that if the dealer alters a material term of the signed purchase agreement, the buyer would only be entitled to a refund of his or her “initial deposit” if the cancellation occurred within the first three days of making the agreement.
Senate Bill 522 was sponsored by Sen. Danny Earl Britt, Jr (R, Columbus, Robeson) and Sen. Chad Barefoot (R, Franklin, Wake). Primary sponsors for House Bill 685 included Rep. John Szoka (R, Cumberland), Rep. Sam Watford (R, Davidson), Rep. Lee Zachary (R, Alexander, Wilkes, Yadkin) and Rep. Ken Goodman (D, Hoke, Richmond, Robeson, Scotland). Additional sponsors included Rep. Brenden Jones (R, Bladen, Columbus, Robeson), Rep. Marvin Lucas (D, Cumberland) and Rep. Michael Wray (D, Halifax, Northampton).
Though some legislators have been pushing hard to pass this bill since last session, this bill never got a hearing in any committee.
Bill to Reduce Mortgage Broker Bonding and Auditing Requirements
House Bill 654 would have significantly reduced the minimum surety bond requirements for mortgage brokers and would have removed the requirement that their financial statements be audited. By keeping minimum bond amounts high, bonding agencies have an incentive not to bond bad actors. Higher bonds also make it more likely that consumers wronged by a mortgage broker can be made whole. Requiring audited financial statements is an additional protection against mortgage brokers who might be engaging in abusive practices. During the foreclosure crisis, mortgage broker abuses were widespread. We must be sure we do not return to this period of lax oversight.
Primary sponsors for House Bill 685 included Rep. Jon Hardister (R, Guilford), Rep, Jonathan Jordan (R, Ashe, Watauga) and Rep. Ken Goodman (D, Hoke, Richmond, Robeson, Scotland). Additional sponsors included Rep. John Faircloth (R, Guilford), Rep. John Szoka (R, Cumberland), and Rep. Michael Wray (D, Halifax, Northampton).
Bills to Increase Interest and Fees on Revolving Credit Charge Accounts
Senate Bills 572 and Senate Bills 574 would have increased the interest rate on revolving credit charge accounts under the Retail Installment Sales Act (RISA) from 18% to 22% and would have also increased late fees on these accounts to $25. These open end revolving credit accounts are taken when a buyer makes a purchase of furniture, appliances, electronics or other goods at a store and then arranges financing directly from the store. The terms of these arrangements are regulated under the Retail Installment Sales Act (RISA). One option is for the retailer to finance the purchase as an open-end credit account. The Retail Merchants Association was pushing these bills, arguing that merchants in other southern states can charge higher interest and include larger late fees. Senate Bill 572 would also have increased the late fee on installment contracts under the RISA.
We opposed both bills, which did not get a hearing in any committee. These were two of three RISA-related bills sponsored by Sen. Rick Gunn (R, Alamance, Randolph).
Bad Bills That Passed
Increase Cost Of Consumer Loans With More Junk Insurance – HB 140 Becomes Law Despite Governor’s Veto
Bill to Increase Cost of Consumer Loans with More Junk Insurance Passed Over Governor’s Veto
House Bill 140: In the final hours of their regular session in June, leaders in the General Assembly added a last- minute amendment to an unrelated bill. This amendment, which was never discussed in a legislative committee and was never the subject of another “stand alone” bill, allows consumer finance lenders who make expensive consumer loans to increase their profits by selling more credit insurance on personal property that borrowers use as collateral to secure their loans. This “junk” insurance, which helps the lender more than the borrower, pays less than $9 in claims for every $100 that borrowers pay in premiums, a far cry from the 60% payout rate (loss ratio) recommended by the National Association of Insurance Commissioners (paying out $60 in claims for every $100 in premiums).
What Does HB 140 Do?
Consumer loan shops already sell very expensive loans to financially vulnerable borrowers. Loan amounts are usually between $500 and $3000, but can go up to $15,000. The interest rate on these loans can go to 30%. On average, two credit insurance products are packed into every loan. And, the frequent practice of loan flipping (distress refinancing when the borrower falls behind) adds to the problem, since the borrower doesn’t get a full refund on the “unused part” of their premium when they pay off their last loan, but pays the full premium again on the loan refinance. And, of course, these premiums are folded into the loan at the front end, so the borrower pays high interest on the insurance premium as well.
HB 140 drastically expands the list of items that can be covered by this insurance by adding the phrase “and any of other property of the debtor, exclusive of an automobile”, which could include all-terrain vehicles, dirt bikes, boats or other personal property.
Classic "Pay to Play"
According to a Democracy NC analysis and recent news reports, two dozen consumer finance lenders and their PACs gave at least $530,000 in campaign contributions between January 2013 and December 2016. Royce E. Everette, Jr. is one of the most prolific political donors in the state. He is also chair of the legislative committee of a finance company PAC and his family owns Time Investment, a Greenville-based consumer finance chain with 24 stores in North Carolina. During the four years listed above, he donated $188,000 to state campaigns and parties, and Gail N. Blandon, his mother and company co-owner, donated another $49,200. According to Bob Hall, Executive Director of Democracy NC:
“This industry has a way of winning legislation based on its campaign money rather than the legislation’s merits. It happened in 2010, when Republican leaders in the General Assembly pressured legislators to increase interest rates on consumer loans as a payback for the industry’s surge in donations to the party’s candidates in 2010. And now it’s happening again.”
Read great media coverage about the serious problems with the merits of this bill as well as the process for passage:
- News & Observer 7/10/17 article: “Consumer groups want NC governor to veto finance industry bill”
- NC Policy Watch 7/11/17 article: “Another bill for Governor Cooper’s veto list”
- News & Observer 7/12/17 article: “Consumer loan industry is a big winner at the NC legislature – and a big donor”
- The Progressive Pulse 7/13/17 blog: “Campaign contributions from high-cost lenders: N&O story helps connect the dots to bill on Cooper’s desk”
- News & Observer 8/25/17 editorial, “GOP sticking it to NC consumers again”
"Unlike deer or other animals fancied for hunting, Republicans in North Carolina are seeing to it that it’s always open season on consumers."
- News & Observer 8/24/17 article: ”NC House aids consumer lending industry over Cooper’s veto”
- News & Observer 8/30/17 article: “Law passed over Cooper’s veto helps consumer loan industry”
- NC Policy Watch 8/29/17 article: “Process at the General Assembly sinks to a new and remarkable low”
- The Progressive Pulse 8/29/17 blog: “Legislature advancing a snake oil bill bought and paid for by a snake oil industry”
Governor Cooper wisely vetoed this bill with the following statement:
“Making small loans more expensive by expanding credit insurance can drive borrowers further into debt, especially those who can least afford it. If this bill becomes law, consumers will have higher-cost loans because they will be borrowing the money to pay the credit insurance premiums. Borrowers who need short-term loans should not have to pay more for unnecessary insurance.”
Despite wide coverage about problems with the bill, the General Assembly overrode the Governor’s veto in late August on a straight party vote in the Senate and almost straight party line in the House. This law becomes effective on October 1, 2017.
Senator Dan Bishop (R, Mecklenburg) sponsored the amendment to add this provision.
Bill to Increase Late Fees Becomes Law
Senate Bill 577 increases the late fee on installment loans made under the Retail Installment Sales Act (RISA). Under RISA, a retailer can arrange financing for a buyer to purchase furniture, appliances, electronics or other goods. One option is to structure this as in installment loan (consumer credit installment sales contract) and then sell this loan to a consumer finance company, the same industry that pushed HB 140, discussed above. This bill increases the late fee for consumer credit installment sales contracts from a maximum of $6 to $15. The finance companies that buy these loans pushed for this higher late fee. Consumer advocates did succeed in reducing the late fee from $25 to $15.
This bill passed in June without the Governor’s signature, and became law the day it was ratified. This was one of three RISA-related bills sponsored by Sen. Rick Gunn (R, Alamance, Randolph).
Legal service providers’ budget cuts will let predatory lenders off the hook.
In yet another attack on consumers and all who rely on legal aid organizations, the final state budget cut $1.6 million for legal services providers that defend the poor. In addition to providing legal services for disputes involving employment, denial of government benefits, housing, family law, and other civil matters, legal aid organizations in North Carolina zealously advocate on consumer issues. These organizations include Legal Aid of NC, the Charlotte-based Legal Services of Southern Piedmont, and Asheville-based Pisgah Legal Services. Though there was virtually no discussion of these cuts at the time, Speaker Tim Moore defended the cuts in an 8/11/17 AP article, “North Carolina Speaker Blames Lawyers' Zeal for Legal Aid Cuts” by suggesting that “some legal aid attorneys are over-zealous in their defense of renters in landlord-tenant disputes”. George Hausen, Executive Director of Legal Aid of NC responded:
“We do what is necessary in a case to ensure that the law is followed by the court and that we avert homelessness. We have neither the time nor the resources to file frivolous motions.”
There is no doubt that reduced funding for these legal service providers will allow more predatory lenders to get away with illegal practices.
The NC General Assembly will be returning for another special session in early October, and their adjourning resolution has left the door open for even more special sessions between then and when they reconvene for their 2018 short session on May 16, 2018.
Between now and the 2018 short session, we will also be facing major threats in DC, as Congress and the federal administration push to:
- Dismantle the Consumer Financial Protection Bureau (CFPB), our federal watchdog against predatory lending;
- Roll back federal protections against predatory lending, including the CFPB’s soon to be released national payday rule;
- Rollback federal bank regulation that currently prevents banks from making bank payday loans; and
- Allow out of state lenders to evade our state interest rate cap that currently keeps payday and car title lenders out of North Carolina.
Please look for our updates, action alerts and sign-on letters on all of these issues over the next few months.
Please let me know if you have any questions about this NC General Assembly Wrap-Up or threats we are facing at the federal level. And thank you for your quick action to keep North Carolinians free from predatory lending.