Press Releases:
THE CONCORD MONITOR
November 26, 2006
Payday lenders proliferate
State senator wants to cap interest rates
By Lisa Arsenault
Monitor staff
An oversized yellow banner hangs from the eves of the Advance America store on South Main Street, asking passers-by in bold green letters: "Need money now?" Beneath the banner, an advertisement painted on the store window says "Get $100 to $500 before your next paycheck."
It is the second store of its kind to open on Concord's Main Street this month. The service offered by such fast-cash stores, called payday lending, is outlawed or strictly regulated in most New England states, effectively curbing the growth of the industry. But in New Hampshire, the number of payday lenders has grown steadily in the past seven years since the Legislature removed a cap on the interest rates for small loans, said state Banking Commissioner Peter Hildreth.
The practice is controversial because the interest rates charged to payday borrowers are high: sometimes more than 500 percent. But the payday loan companies say they're providing a necessary service.
"We provide quick access to funds that help hardworking people meet their financial obligations," said Jamie Fulmer, a spokesman for Advance America. "This is really the heart of the working middle class."
When Advance America was founded in 1997, only 16 states in the country allowed payday lending. Today, 38 states allow it, and that growth concerns some consumer groups and lawmakers.
In New Hampshire, Hildreth attributes the growth to people coming over the border from other states.
"Most of the shops are along the borders," he said.
But he's not sure if the state should ban the practice. First, the state would have to come up with some alternative way to make sure people with bad credit or financial trouble can still get small loans, he said.
Companies like Advance America and Check N' Go - two payday lenders with offices throughout New Hampshire - offer two-week loans to customers who need money before their next paycheck. For every $100 borrowed, customers are charged a $20 fee - which translates to an annual interest rate of 520 percent. On the average loan of $351, that means a customer pays $53 in fees, according to Advance America spokesman Jamie Fulmer.
In most of the New England states, lawmakers have curbed payday lending either by banning it outright or by setting a cap on the interest rates of small loans, which squeezes out payday lenders who charge high fees for instant cash. Rhode Island and New Hampshire are the only states in the region where payday lending is not restricted.
In Rhode Island, state lawmakers increased the cap on small-loan interest rates to 15 percent three years ago, said state Banking Superintendent Dennis Ziroli. Since then, the number of payday lenders has gone from about eight to more than 15, he said.
In New Hampshire, there are 24 operating payday lenders with another 23 in the works, Hildreth said. In 2005 alone, payday lenders shelled out $41.4 million in loans, up from $31.8 million the year before, he said.
Critics of payday lending call the fees charged for the loans outrageous. The problem, they say, is that many customers won't be able to pay after their next paycheck either, leading to a vicious cycle of debt.
"There's nothing more dangerous," said Nick Jacobs, a spokesman for the National Foundation for Credit Counseling based in Maryland. "What we've seen is that a lot of people tell themselves this is only going to be a one-time thing but it's never that simple."
Often people are in more complex financial trouble than they think, if they've gotten to the point where their only option is a cash advance, Jacobs said. Companies do not do enough background checking to make sure people will be able to pay back the loan they take, he said.
To get a loan from cash advance stores, customers must bring proof of employment and a valid checking account number but do not undergo the same stringent credit check required of regular loans. Customers instead write a check for the amount of the loan plus the hefty interest fee. The company agrees not to cash the check until the customer's next pay day.
New Hampshire law bans payday lenders from "rolling over" a loan - allowing borrowers to take out a second loan to cover the first one if they cannot pay when their next paycheck comes.
But if customers can't pay back their loan, they can still ask the company not to cash their check, said John Rabenold, a spokesman for Check N' Go. Instead, they can make payments on the loan at no extra cost, he said.
Check N' Go, based in Ohio, has seven stores in New Hampshire and five more on the way, Rabenold said.
A one-time fix
Advance America and Check N' Go spokesmen both said critics of payday lenders have the wrong idea about the customers they serve. They are not poor, uneducated borrowers who don't understand the consequences of their actions. They are people who have had an unexpected expense and need a one-time fix to tide them over to the next paycheck.
If someone is on the verge of bouncing a check or missing a utility payment, the fees they can rack up are even greater than the fees charge for payday loans, they said.
The average Advance America customer is just under 40 years old with a median household income just under $41,000, said Fulmer, a spokesman for the company. A little less than half own their own homes, and almost all of them have a high school education, he said.
The business model regulates itself, Rabenold said. The company loses money when people don't make good on their loans, so it is in the company's best interest to make sure people aren't abusing the system, he said.
And the alternatives people have to payday loans are even riskier, he added. People can enter into similar loans on the internet with no guarantees and even higher fees.
A cap on rates
Still, state Sen. Lou D'Allesandro, a Democrat from Manchester, believes New Hampshire should cap the interest rates on payday lending.
The Legislature first opened up the state to payday lending in 1999, when it removed the cap on interest rates for small-loan lenders. D'Allesandro, who sponsored that bill, said an unintended consequence was the sharp rise in payday lenders in the state. Now he thinks the state needs to find a compromise - a cap on interest rates tight enough to restrict payday lenders but not so tight that people who have bad credit can't still get some type of emergency loan, he said.
He expects a bill will come before the Legislature next session and, since the Democratic takeover of the House and Senate, may have more of a chance to pass than previous attempts. D'Allesandro was one of several sponsors of a bill last session to put a 100 percent cap on small loan interest rates, but it was tabled.
"I think many things will see the light of day," he said.
Hildreth, meanwhile, has been working with local credit unions to create a loan program that would give people with bad credit an alternative to payday lenders. Borrowers would get a lower interest on their loans as well as financial training to help them budget better, he said.
One state that has struck a good balance is Florida, Hildreth said.
Florida law allows payday lending, but the state keeps a database of customers, to make sure they can't go from company to company taking out cash advances and racking up debt.
If New Hampshire is going to ban payday lending, lawmakers must make sure there is another option for the people who need that kind of financial help, he said.
"It's a complicated issue," he said.
------ End of article
By LISA ARSENAULT
Monitor staff
Back to top.
|
