Three NC payday lenders agree to close, nearly drying up industry
March 1, 2006 - Raleigh, North Carolina
The three major payday lenders still operating in North Carolina will stop offering quick-cash loans in the state, just about eliminating payday lending here, Attorney General Roy Cooper announced Wednesday.
"With these agreements today, we are not aware of any companies that will be making payday loans in North Carolina," Cooper told reporters.
Check Into Cash, Check 'n Go and First American Cash Advance also agreed to pay $700,000 to nonprofit credit counseling offices and other financial literacy groups as part of the deal.
The agreements come after the state banking commissioner ruled in December that Advance America, the state's largest chain, was breaking state lending laws by charging effective annual rates of more than 400 percent on loans. The state's Consumer Finance Act caps annual percentage rates on small loans at 36 percent.
Advance America appealed the ruling but shuttered their 117 offices in the meantime.
The three lenders who entered Wednesday's agreement operate 152 outlets statewide, Cooper said.
"This is a great day. I am so excited," said Stella Adams, executive director of the N.C. Fair Housing Center. "This has been a long, long battle for consumers across this state."
In a payday lending transaction, a borrower writes the lender a check and postdates it for the expiration date of the loan. The borrower is then lent an amount less than the value of the check, while the lender cashes the check for the full amount. The loans are typically a few hundred dollars and short-term _ 15 days or less.
Cooper and other payday lending opponents have said the loans keep customers in a destructive cycle of debt when they can't pay off the loan principal, requiring them to pay another fee. Customers often pay several times the amount of the original loan.
"Payday lending is like needing a life preserver and then being thrown an anvil," Cooper said. "The consumer walks through the door of a payday lender looking for help, but finding a quicksand pit inside."
Payday lending has technically been banned in North Carolina since 2001, but several lenders have continued to operate, arguing they were exempt from state law because out-of-state banks originated and issued the loans.
But federal banking regulators discouraged the practices and Cooper's office had taken its own legal action. Then came the banking commissioner's Dec. 22 ruling that Advance America was in the lending business and not simply an agent for its out-of-state partner.
The consent agreements say that it appears that the payday lending companies operated similarly to Advance America by using an out-of-state bank.
First American Cash Advance and Check 'n Go agreed to stop making loans by March 11. Check Into Cash officials said they stopped Tuesday. The outlets will remain open for up to four months to collect principal or installment loan payments, but may not charge any interest or late fees during that time.
Representatives of the three loan companies couldn't immediately be reached for comment.
Payday lenders argued that the loans serve a need for low-income people who needed small loans quickly. Traditional lenders said they couldn't make a profit on such small loans under the existing consumer finance laws, although Cooper said First American will attempt to get licensed to offer loans under the current rules.
The General Assembly has considered creating new classes of loans to fill this niche, but industry and consumer advocates have failed to agree on the details.
Yolanda McGill for the Center for Responsible Lending in Durham said Wednesday's agreement may pressure the industry to agree to more restrictive rules. The 36 percent cap could be raised to make the loans a little more attractive to offer, she said.
"Maybe it needs to be a few points higher," McGill said. "But that's a better strategy than starting at 400 percent."
The State Employees Credit Union offers a small-loan option to its members, but no major banks in the state are marketing similar loans as a payday-loan replacement, officials said.
Fayetteville Online, AP Staff Writer
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