Payday loans bill draws criticism ::

– North Carolina lenders could once cons give out small, short-term loans, known as payday loans, under a bill introduced by Sen. Jerry Tillman, R-Randolph.

Lawmakers banned payday loans in 2001, and a 2005 court case pushed the last elements of the industry out of state.

Tillman said Thursday there were problems with the old payroll system, but he said it was necessary for people to get short-term credit based on their income.

“We have people who have problems from time to time, good people who have jobs,” he said. “I met people in my neighborhood who needed it.”

The classic example, he said, is of a person who needs money to fix their car but doesn’t have a credit card.

Tillman’s bill would cap the amount borrowed at $500 and limit the interest rate to 15%. That’s less than previous sessions’ payday loan bills, but still equates to an annual percentage rate of 300% for a loan paid off in two weeks, consumer advocates say.

Tillman’s bill drew criticism from consumer advocates and Attorney General Roy Cooper, a Democrat, who said the payday industry should not be allowed to gain a foothold in the state.

“Payday loans are like needing a lifeline and having an anvil thrown at you,” Cooper said. “We’ve seen it in North Carolina – really high interest. People tend to go into debt on a treadmill that they’re having a hard time getting out of.

“When you unleash this industry on consumers in North Carolina, a lot of people are going to suffer.”

After fighting payday lenders for years, he says, he’s not surprised they’re trying to come back.

“There’s a lot of money to be made with people struggling with this business,” he said.

Consumer advocates have also criticized the measure, which is tentatively set to be heard in committee next week or the week after.

“The way the loans are designed, it’s very difficult to pay them back. So not only are you paying an incredible amount to have these loans, but you also have a very high expectation or risk of being trapped in these loans for for a long time, paying these very high interest rates,” said Al Ripley, director of the Consumer and Housing Project at the left-leaning NC Justice Center.

“These loans are especially dangerous for seniors,” said Helen Savage of AARP in North Carolina. “The high costs of predatory lending pose serious risks for all of us, but especially for older North Carolina residents on fixed incomes.”

Tillman acknowledged that there were problems with the old payday loan system. Borrowers could get into trouble when they couldn’t meet the terms of their first loan and took out a second loan to pay it off. This triggered a cycle of indebtedness that many struggled to escape.

Senate Bill 89, he said, would require borrowers to repay their payday loan before taking out another one and create a monitoring system to ensure that someone could not go to a lender to repay one another.

“Reversal is what has killed people in the past,” Tillman said, adding that the bill will likely be revised.

For example, he said he hasn’t decided whether the banking commissioner or some other state body should oversee the industry.

“If we are called upon to regulate it, we will,” said Acting Banking Commissioner Ray Grace.

His office played a role in the lawsuit that shut down the industry here in 2005, but he said it was not his role to argue one way or the other.

“It’s up to the General Assembly to determine what’s best for the people of the state,” Grace said.

His office’s only concern would be to ensure that the rules for regulating the industry were clear and that there were sufficient funds to provide oversight.

Payday lenders said legalizing their industry again would help people with poor credit.

“This helps ensure that during difficult economic times, North Carolina residents have access to reasonable and properly regulated financial options,” Jamie Fulmer, senior vice president of Advance America, said in a statement. “In recent years, consumers’ borrowing choices have narrowed, but their need for credit has not diminished.”

Ripley said there are plenty of less predatory options.

“We’ve done very well in North Carolina for over 10 years without a payday loan,” he said. “In fact, I would say borrowers are much better off without this product.”

Rep. Ruth Samuelson, R-Mecklenburg, said the paydays bill was one of many banking pieces of legislation she knows people want to pass through the House.

A House Companion to Tillman’s bill has yet to be introduced, and Samuelson said there are other non-traditional lending products businesses could seek to legalize. However, she said, there are other bills dealing with mortgage interest and a cleanup of state banking law regulations that will take precedence.

“Those are the structural things that we have to do,” she said. When asked if the payday loans bill would be completed, she replied “we’ll see”.

In a press release on the measure, Cooper noted that the bill would not provide payday loans to military families.

“Congress already banned payday loans to military personnel in 2007 to protect service members from these predatory loans,” he said.

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