The Consumer Finance Act lets non-bank lenders make small loans of $10,000 or less. The current law creates two tiers of lenders: "53-173" lenders who can make loans up to $3000 and "53-176" lenders who can make loans up to $10,000.
If HB 810 had passed, it would have:
Increased the Loan Size
Increased the maximum loan size from $10,000 to 15,000.
Increased the Interest Charged on Loans
Under Section 173 (for loans up to $3000)
- Would have allowed 36% interest on loans up to $1500. Current law allows 36% interest only on loans up to $600.
Under Section 176 (for loans up to $15,000)
- Would have allowed 30% interest on loans up to $5000, 24% on the balance between $5000 and $10,000, and 18% on the balance between $10,000 and $15,000. Current law caps these loans at $10,000. Any loan above $7500 is currently capped at 18% for the full loan. Loans less that $7500 are a blended rate of 30% on the first $1000 and 18% on the portion above $1000.
Would Have Added Numerous New Fees
The bill included numerous new fees, including late fees, fees to record a security interest on the loan, and deferral charges.
Would Have Allowed Loan Flipping
Would have allowed a loan to be refinanced every 91 days, as long as the borrower receives the greater of $100 or 20% in cash in excess of the amount of the original loan.
Allowed Lenders to Lend Under Either Section
Currently lenders can either lend under either section 73-173 (loans now capped at $3000) or 73-176 (loans now capped at $10,000). This bill would have allwed lenders to lend under either section. This would have allowed more expensive loans to be made by the vast majority of the lenders, "176 lenders", who are not able to make these smaller, more expensive loans now.
Continued Other Add-On Products
Consumer finance companies also make considerable profits by selling add-on products like credit insurance- credit life, credit disability, credit unemployment, etc. This bill would have done nothing to rein in the sale of these insurance products, which add considerably to the price of the loan, while offering limited value to the borrower.
Would Have Created Legislative Study Commission
An amendment on the House floor required the creation of a Legislative Study Commission on Improvement in Small Dollar Lending, with language almost identical to previous commissions authorized and completed in 2008 and 2010. Though these previous commissions, and the resulting NC Commissioner of Banks study, have not recommended rate and fee increases, the industry continues to push them.
Would Have Included Requirements for Military Borrowers
An amendment on the House floor required military members to obtain written authorization from their company commander before the loan can be made. The lender would have been required to retain a copy of the military ID card from the borrower. The borrower would have had to attest that he/she is not military or, if he/she is military, had obtained the written authorization. No penalties were specified for the lender violating this section. This provision would not have been effective, though it would have placed an additional burden on commanders and put service members at risk of fraud and perjury.