Payday loan rate cap among new laws for 2009

Dec, 2008

New Hampshire is giving payday lenders the gong as it rings in the New Year.

A law that takes effect Thursday caps the interest rate on small loans at 36 percent a year, which the industry has said will put it out of business.

Payday lenders typically charge $20 per $100 for two-week loans backed by the borrower's car title or next paycheck. That amounts to 1.43 percent interest per day, an annual rate of 521 percent.

The cap translates to a daily interest rate of about 0.1 percent, or total interest charges of $1.38 — a dime a day — on a $100, two-week loan.

Supporters say the cap will prevent people from getting caught in a "debt trap" of not being able to repay high

Opponents, including South Carolina-based Advance America Cash Advance, say payday lenders can't make enough money to under the cap to cover salaries, rent, electricity and other basic business expenses.

Advance America spokesman Jamie Fulmer tried in vain to persuade lawmakers that tho USAnds of people needing quick cash for a short time would lose a valuable option if the cap was enacted.

In early December, Advance America asked Banking Commissioner Peter Hildreth's permission to change its loan offerings to an open-ended line of credit, charging between 365 percent and 456 percent in annual interest depending on whether the borrower allows automatic payment on the loan. Borrowers could establish lines of credit ranging from $500 to $750 and withdraw money in $10 increments, with $10 being the minimum withdrawal.

Advance America said its proposal falls under a section of the banking law that covers small lenders that aren't payday lenders. The section does not cap interest rates.

Advance America also said it would stop providing payday loans Thursday in compliance with the new law, but Fulmer insisted consumers still need access to small amounts of cash.

"The overriding theme is there's a strong consumer need for small amounts of short-term credit," he said.

Fulmer estimated that 200 people work for payday lenders in the state, including about 50 in Advance America's 24 stores.

Fulmer said some customers might turn to Internet lenders not regulated by state laws.

"This law is a boon for the unregulated Internet provider," he said.

New Hampshire is not the only state to take on the payday lending industry. A new Ohio law limits borrowers to four short-term loans per year and caps interest rates at 28 percent. Last spring, Arkansas' attorney general sued 20 payday lenders he said had violated the 17 percent cap on loan interest rates in the Arkansas Constitution.

Lenders pulled out of Oregon when lawmakers capped rates at 36 percent. The District of Columbia capped its rates at 24 percent. A handful of states have laws prohibiting triple-digit annual interest rates.

Source :: Nashuatelegraph.com