House bill proposes new short-term loan
June 2, 2006 - Raleigh, North Carolina
The closing of payday lending shops in North Carolina this spring doesn't change working people's need for short-term loans, some House members say.
Several members have filed a bill that would create a new type of loans of up to $3,000 designed to help consumers improve their credit ratings when they repay them on time, helping them qualify for more traditional loans in the future.
"It will allow people to get credit and to rebuild their credit score," Rep. Beverly Earle, D-Mecklenburg, one of the bill's sponsors, said Thursday. "Traditionally, they don't have anywhere to go."
But opponents of payday loans contend the plan proposed by the House is too similar to payday lending with high interest rates compared to credit cards and monthly fees that make it hard to get out of a cycle of debt.
"We're still examining the proposal, but it appears that the interest rates and fees on these new loans drive the cost too high for consumers," Attorney General Roy Cooper said.
The state's largest payday lender, Advance America, also agreed in December to shutter its doors after banking regulators agreed the company violated consumer finance laws by charging effective annual interest rates exceeding 400 percent.
The new bill would offer much higher loan amounts than payday loans, which were typically less than $500.
And unlike a payday lending transaction, when a borrower writes the lender a check and postdates it for the expiration date of the loan -- generally 15 days or less -- these "credit enhancement loans" don't involve checks and have terms of no less than 120 days.
The lender, which would have to receive a license created in the bill to operate in North Carolina, would offer periodic reporting of lenders' repayment history to credit bureaus so that consumers can improve their credit scores.
If loans were paid on time, the lender also would agree to offer better interest rates on future borrowing.
But initially the lenders could charge up to 60 percent on loans, higher than the 36 percent cap currently allowed on traditional loans.
And they could also charge monthly maintenance fees of up to $29.95 per month, late fees of $25 and twice-annual "credit enhancement services" fees of $25.
Star-News, Gary D. Robertson, AP Writer
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- Payday lenders reinventing business model to skirt state law, opponent says [June 27, 2006]
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- Advance America Cash Advance Centers upgraded to 'market outperform' [June 22, 2006]
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- Short-term payday loans do a booming business in N.H. [May 14, 2006]
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- Nation's largest payday lender looks at possibly pulling out of Arkansas [March 21, 2006]
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- Cash Advance's loans in N.C. ruled illegal [December 23, 2005]
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