New Hampshire Payday Loans Lure in Poor
By Paul RizzoPayday Loan Writer
Sarah Mattson is a staff attorney for New Hampshire Legal Assistance in Manchester. The following is from the New Hampshire Union Leader …
My client, “J,” took out a car title loan last July. She thought it would help her get through a short-term lack of income.
By January, she’d taken out 34 loans from five different payday and car title lenders. The annual interest rate on a typical payday loan in New Hampshire exceeds 500 percent, and J shelled out more than $2,000 in interest. That’s because there hasn’t been an interest rate cap on small loans in New Hampshire since 1999, when lenders were allowed to charge more than 2 percent per month.
Unregulated interest rates mean payday and car title lending has exploded. The industry is wildly profitable; the nonpartisan Center for Responsible Lending recently reported that the typical payday loan borrower pays back $793 for a $325 loan. American families pay $4.2 billion in excessive payday loan fees each year.
Last summer, the Pentagon reported that the effects of predatory lending had compromised the mission readiness of America’s military personnel.
Congress responded swiftly, enacting legislation to cap the annual interest rate on loans to service members at 36 percent. On March 20, the New Hampshire House Commerce Committee voted to retain proposed legislation that would have extended similar protection to New Hampshire borrowers.
Triple-digit interest rates aren’t the only problem with faxless payday advance lending. Consumers take out payday loans because they’re financially distressed. Many don’t have the resources to pay back their loans with enough left over for ordinary living expenses, so they borrow over and over again, falling into a never-ending debt trap. Statutory prohibition of payday loan rollovers does nothing to prevent this debt trap because lenders are permitted to extend a new loan immediately after a previous loan is paid in full.
That’s just what happened to J.
She turned to payday lending when she was in between jobs and couldn’t stretch her welfare check far enough to meet the needs of her two young children. Rather than helping J, bad credit cash loan lending further strained her already tight budget and quickly ensnared her in the debt trap. Lenders offered her money over and over again, often making new loans minutes after she repaid old ones.
J’s story is typical of payday loan borrowers.
Advance America, New Hampshire’s biggest payday lender, reported an average of eight loans per customer per year in its 2005 Securities and Exchange Commission filing. The Center for Responsible Lending estimates that 90 percent of fast payday advance lending revenues are generated by repeat borrowing. The debt trap exploits working families, senior citizens, people with disabilities, and anyone else who struggles to make ends meet once in awhile.
An interest rate cap is the only way to protect consumers from this vicious cycle. Well-intentioned reform measures in other states have floundered as the payday lending industry develops new and ingenious ways to continue marketing multiple loans to each customer.
Here in New Hampshire, the industry has proposed an “extended payment plan” that would allow borrowers to repay their no fax payday loans over two months. That species of reform has already failed in states like Oklahoma and Washington, where less than 1 percent of borrowers take advantage of payment plan options.
Opponents of a 36 percent interest rate cap claim it will put payday and car title lenders out of business, leaving consumers with nowhere to go. This argument neglects the reality that payday lending doesn’t exist in Maine, Vermont, Massachusetts and most other states in the Northeast - and that it didn’t exist here in New Hampshire until a few years ago.
It also neglects to acknowledge the many viable alternatives to pay day loan lending. Consumers have other sources of short-term emergency funds, including employers, family and friends, community action programs, faith-based organizations, and state and local welfare. The list may soon include credit unions, which are ideally situated to offer small-dollar, low-cost loans.
It certainly shouldn’t include loan sharks. There’s no evidence that illegal loan sharking runs rampant in the many states that prohibit payday lending, nor that the attorney general won’t enforce our criminal laws.
New Hampshire Legal Assistance supports a 36 percent rate cap because many of our clients have stories like J’s. Manchester Welfare Commissioner Paul Martineau supports it because his office receives requests for assistance from people who have fallen into the debt trap. Like other consumer advocates, we know that New Hampshire residents sometimes need help.
Experience has shown us that check cash advance lending isn’t the kind of help they need. After studying the issue this summer, the House Commerce Committee should reach the same conclusion.
