Senate Bill 489 would add fees, raise interest rates and enrich profitable lenders at the expense of hard-working North Carolina families
RALEIGH (April 9, 2013) — A new bill to hike rates on installment loans and add new fees would cost consumers at least $50-70 million each year in additional interest, experts say, harming North Carolina families during hard economic times.
“These rate and fee increases are going to cost consumers millions while making these loans harder to pay off, trapping even more people in debt,” said Al Ripley, Director of the NC Justice Center's Consumer & Housing Project. “This bill moves North Carolina in the wrong direction. As a matter of public policy we should be addressing the predatory aspects of these loans rather than making them more expensive.”
Harm to the state wouldn’t stop with the impact on borrowers: the majority of the profits on these loans would flow out of North Carolina. The consumer loan industry is dominated by six out-of-state lenders: OneMain Financial (a subsidiary of Citibank, currently for sale); Springleaf (owned by private equity firm Fortress Investment and insurance giant AIG); Georgia based Lendmark Financial (a subsidiary of BB&T); and South Carolina-based companies Security Finance, National Finance, and Regional Finance. Together they control 70 percent of the North Carolina market.
Experts say that the reality on the ground proves no rate or fee increases are needed in consumer finance laws. According to a February 2011 report from the state Commissioner of Banks, the lenders who would benefit from the bill are already proving profitable – and were even during the depths of the recession.
“These interest rate increases will only increase the risk that borrowers will fall behind on these loans,” said Chris Kukla of the Center for Responsible Lending. “If the financial crisis taught us anything, it is that unnecessarily expensive loans are bad for borrowers and bad for the economy.”
In North Carolina, current law has a maximum interest rate of 30 percent on certain installment loans, but only on the first $1,000 of the loan balance. The interest rate then drops to 18 percent on the remaining balance. Senate Bill 489 would allow the 30 percent rate to be charged on the first $5,000 of loan balance, and increase the interest rates on larger loans up to $15,000.
New evidence also shows that finance companies aggressively market their customers to refinance their loans, enriching themselves at the expense of vulnerable consumers. According to data from the NC Commissioner of Banks, 66 percent of loans made in 2011 were to renew existing accounts. In addition to data from the NC Commissioner of Banks, there is other evidence of loan flipping.
For example, according to an article in Tulsa World describing litigation involving Security Finance, the company operator’s manual stated: “First, try to avoid the pay off. All customers desiring to payout should be seated and handled by the Manager.” The article further describes supervisors reports that made statements such as: “Push the renewals, by getting the customer to renew their accounts it will be harder for that customer to pay us out,” “We convinced one lady into not paying us off today even though she had just received $50,000 on a workers comp claim,” and “If you get a ‘no,’ try another approach…We must train our customers to RENEW every two months.”
Similarly, in another case, the Attorney General of Colorado reviewed company documents and in litigation filings said: “Security Finance’s business model is to continually flip (refinance) loans after or as close as possible to sixty days (prior to August 2007) or four months (after August 2007) of the previous loan or refinance to maximize the number and amount of acquisition charges it earns and to prevent consumers from paying off their loans or refinances as scheduled.”
The facts tell one story, experts say: already profitable out-of-state companies using abusive practices to expand profits by extracting still more from North Carolina’s working families.
FOR MORE INFORMATION, CONTACT: Al Ripley, NC Justice Center, firstname.lastname@example.org, 919.274.8245; Jeff Shaw, Director of Communications, email@example.com, 503.551.3615 (cell); Chris Kukla, Center for Responsible Lending, 919.383.8500.