Election 2012 Issue Brief - Predatory Lending by Finance Companies

Background

North Carolina law permits finance companies to make installment loans to borrowers. These loans can have interest rates as high as 36%, and when fees are tacked on, the annual percentage rate (APR) on these loans can be as high as 54%. In addition, finance companies often add the costs of expensive and unnecessary insurance products to these loans.

Finance companies repeatedly “flip” most customers into recurring loans—adding high fees with each new loan. Data indicates that annually as many as 80% of loans are flipped.

Many borrowers end up paying more in interest, fees and insurance costs than they actually borrow. With these high costs, many borrowers have trouble paying their loans off in time. Not only is the industry profitable, but new branches are opening and new companies are entering the market.

Recent Developments

In 2011, the consumer finance industry supported legislation (House Bill 810) to dramatically increase the interest rates and fees they can charge on loans in North Carolina. This is a profitable industry – yet the industry claims that it needs more revenue to survive. A report by the NC Commissioner of Banks found no reason to increase rates and fees on consumer finance loans.

House Bill 810 is opposed by more than 200 groups and individuals representing more than 3 million North Carolina voters, including:

  • U.S. Department of Defense
  • U.S. Marine Corps Installations East
  • Fort Bragg
  • Seymour Johnson Air Force Base
  • Cherry Point Marine Corps Air Station
  • Navy Marine-Corps Relief Society
  • AARP NC
  • NC Association of Credit Counselors
  • NAACP-NC
  • Center for Responsible Lending
  • NC Justice Center
  • NC Attorney General
  • NC AFL-CIO
  • Coalition for Responsible Lending

 

Questions for Candidates

  • Will you oppose attempts to increase rates and fees on consumer finance loans?
  • Will you support a cap on the annual percentage rates for loans set at 36%?
  • Would you support prohibiting the sale of insurance products with consumer loans?
Research & Publications: