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The NC Consumer Finance Act Needs No Adjustment

March 1, 2011
Payday Loans
  • Most consumer finance companies turned a profit in 2008. While the rest of the financial world was reeling from the recession and the effects of poor lending practices, 80% of NC consumer finance companies turned a profit. Clearly, the law provides ample opportunity for consumer finance companies to profit.

  • Consumer finance companies are demanding guaranteed profits. The CEO of a consumer finance company said in an open meeting, "I deserve a 15% return on equity." The law should only guarantee the ability to make a profit, not confer a right to profit for anyone who applies for a license.

  • Changes will disproportionately benefit CitiFinancial and American General. CitiFinancial and American General (owned partly by AIG and a NY hedge fund) own 2/3 of the outstanding loans in the state. Any changes to the Consumer Finance Act would send millions of dollars out of state.

  • Raising rates and fees will not make more loans available. Consumer finance companies are a niche business with a static customer base, and they uniformly charge the maximum rates and fees allowed. Raising rates and fees will make already expensive loans more so, which will likely result in more delinquencies and charge-offs.

  • Customers trapped in loans. 80% of loans made in 2009 were to existing customers or former customers. While repeat business is good in a lot of areas, it is a disaster for families when high-cost credit is involved. Raising rates and fees will only make it that much harder for hard-working families to escape this debt trap.

  • The North Carolina Consumer Finance Act strikes the appropriate balance. Companies can and do profit under the law while consumers are protected from usurious interest rates and fees.