August 8, 2013
This legislative session was truly like no other in recent history. Many changes to existing laws were made, and certainly our laws protecting consumers from predatory lending were targeted.
A stated objective of the 2013 legislature was to reduce regulation and revise North Carolina's business-related laws to be no more stringent than federal law. This, coupled with the highly polarized political environment and the ample campaign contributions of our opponents, created challenges for us this legislative session. We also faced a large number of freshman legislators unfamiliar with our lending issues and CRL, and allies stretched thin by being forced to wage battles on many fronts. Despite these difficulties, we had several major victories.
The Best News: The bills to authorize payday and car title lending did NOT pass. I hope you will take a minute to enjoy this tremendous victory. Because of your rapid-speed, passionate action, the General Assembly chose not to move these bills and, in fact, never even brought them to committee. Thank you a thousand times over!
The Bad News: We were not able to hold the line against increases in rates and fees on consumer installment loans. However, we were able to limit the damage somewhat.
Consumer protections preserved in mortgage lending bills & banking law rewrite: Six other bills could have reduced NC protections, including changes to the NC anti-predatory mortgage lending law, the SAFE Act, mortgage lending licensing standards, and technical amendments to our state banking laws. We are pleased with the outcome of all of these bills.
- Anti-predatory mortgage lending (HB 692)
- SAFE Act changes (HB 293)
- Transitional mortgage lending licensing (HB 616)
- Technical corrections to the banking law (SB 175)
The payday lending industry went on the offensive this year. They hired 15 lobbyists, including former House Speaker Harold Brubaker and former NC Republican Party Chairman Tom Fetzer, to push an authorization bill that industry has promoted in state capitols across the country. Early in the session, Senate Majority Whip Jerry Tillman filed a payday authorization bill, Senate Bill 89, and Senate Rules Chairman Tom Apodaca immediately signed on as sponsor. Fighting it quickly became our top priority.
A flood of constituent calls just after the bill was filed definitely slowed its progress, and this was followed soon after by letters from the state's military commanders expressing strong opposition. Despite the prominence of the bill's sponsors, SB 89 did not get a hearing in the Senate.
Days before the filing deadline, a payday lending authorization bill was filed in the House. House Bill 875 was sponsored by Representatives Bill Brawley, Rodney Moore, Linda Johnson, Justin Burr and Jason Saine, who contended that the bill added protections not present in the Senate version, and that these protections should address the concerns of the military and other critics. In fact, the protections were of limited value—a virtually identical bill was enacted in Florida, with terrible results for consumers. This House bill also did not get a hearing. However, because it includes a fee provision, House rules make it eligible for consideration in next year's short session, even though it did not pass the chamber before the crossover deadline.
Car-title lenders also saw this session as an opportunity to enter the North Carolina market. Car-title loans are like payday loans, but instead of holding your personal check to deposit on your next payday, car-title lenders hold the title and keys to your car. Amazingly, industry lobbyists tried to position these triple-digit loans as a more consumer-friendly alternative to payday loans.
Days before the filing deadline, Representatives Charles Jeter and Rodney Moore filed House Bill 721 to amend the pawn statute to allow car-title loans. The bill's three other sponsors—Representatives Susi Hamilton, Elmer Floyd and Ken Waddell—removed their names from the bill after they more clearly understood the problems with the bill. The bill was never heard in committee, and obviously did not meet the crossover deadline either.
After 30 years of trying, the installment lenders got an increase in the rates they can charge, and they can now charge late and deferment fees as well. These consumer finance lenders include Time Financial, Security Finance, Regional Finance, One Main (former CitiFinancial) and Springleaf (former American General). Industry supporters waited to file their bill, Senate Bill 489, until relatively late in the session, after ample focus on the harms associated with payday lending.
Under existing law, these loans carry average APRs of approximately 24%, and the new legislation will raise average rates above 30%. Add-on products like credit insurance make these loans significantly more expensive, and create an incentive to repeatedly refinance the loans. But, in comparison to 300% APR payday loans, the installment loans appeared to be a reasonable alternative to many legislators. Key legislators declared their support for the bill even before the session began.
Moreover, industry considerably expanded its campaign donations, as well as its team of lobbyists. One of their new lobbyists was the recently retired head of the Judge Advocate General division at Fort Bragg, and his job for the past three years was to persuade the state's military commanders to drop their opposition to the bill. He accomplished this objective. Once the military withdrew its opposition, our ability to defeat the bill was even more limited. We were able to negotiate some modest improvements in the rates. Industry and the bill sponsors agreed to this in exchange for our agreement to suspend our campaign against the bill.
For more detail about the provisions of Senate Bill 489, see our June 2013 Legislative Update.
The legislature and the Governor had an express mission to find any rules or laws in NC that were more stringent than federal law and make them the same. In fact, every agency was required to review the rules and statutes under their purview, and propose legislation to conform them to federal rule or law if they exceed federal requirements. Because of this, several bills were introduced that would have weakened requirements for mortgage bankers and mortgage brokers. In each case, we were able to work with the bill sponsors to maintain important consumer protections.
The most significant of these bills, House Bill 692, was introduced by Representative John Szoka, a freshman House member, owner of a mortgage brokerage company and previous head of the NC Association of Mortgage Professionals, the trade association representing mortgage brokers. His stated objective was to conform NC law to federal law under the Dodd-Frank Act, but the initial version of the bill would have rescinded the 2007 "Rate Spread Home Loan" provisions and eliminated a borrower's ability to challenge violations in state court.
We worked with the bill sponsor to accomplish his objective while retaining state law claims, by making violations of federal law violations of state law as well. We also agreed to an increase in the points and fees threshold for "High Cost Home Loans" from 4% to 5%, and to excluding FHA, VA and USDA fees from the points and fees calculation. In exchange, the bill sponsor agreed to remove the exclusion for upfront private mortgage insurance that was in his initial draft, and to remove a provision that would have raised the loan amount exemption from the usury cap from $10,000 to $20,000.
As part of the review process for statutes that exceed federal law, we participated in a workgroup convened by the NC Commissioner of Banks (NCCOB) to consider conforming changes to the SAFE Act. A small number of mortgage brokers tried unsuccessfully to use this process to significantly reduce NC mortgage lending protections. Further, a few other suggested provisions were discussed, but ultimately tabled, that would have made more substantive changes to these laws or would have had an impact on other statutes. The final bill, House Bill 293, made a few changes to the testing and license reinstatement requirements, but despite industry efforts, no substantive mortgage lending requirements were changed.
House Bill 616 codifies the NCCOB's existing process for providing transitional licenses for loan officers who leave a depository institution (bank or credit union) for a non-depository mortgage lender. We worked with the NCCOB to make sure that this bill did not eliminate any consumer protections.
Last session, we were part of the legislative study commission that rewrote the NC laws governing banks and bank formation. Senate Bill 816, Modernize NC Banking Code, which passed in 2012, left the interest rates and the predatory lending protections untouched. Before the start of this 2013 session, the NCCOB invited us to participate in a workgroup to address some technical changes to this newly crafted banking law. Some bank lawyers on this group tried to insert substantive changes that would have eliminated consumer protections. We helped redraft those sections to preserve these protections. We fully supported the final bill, Senate Bill 175 (and its House companion House Bill 277) which was a purely technical corrections bill.