Consumer loan changes get initial OK in NC Senate

RALEIGH, N.C. (AP) -- North Carolina installment loan companies could charge higher interest rates on most borrowers and new fees in legislation tentatively approved Thursday by the state Senate.

The chamber voted 39-9 for the legislation sought by the consumer finance industry, which hasn't seen interest rate and loan amount caps changed in 30 years. The companies and their lobbyists contend they need help to keep offices open and workers employed, but critics say that companies are profitable and that working people who get the loans can't afford higher rates in an era of low-cost capital.

The proposed payment structure would allow people to borrow up to $15,000; the current limit is $10,000. They also could be charged up to 30 percent interest on the first $5,000, compared with the first $1,000 now under the schedule most lenders follow. Lenders would be permitted to charge a $15 late fee for the first time and deferred payment charges.

"Customers need to understand their need to make their payments on time and according to their contract," said Sen. Rick Gunn, R-Alamance and a primary sponsor of the bill. Gunn said the fees and interest and principal amount adjustments are reasonable after years of little regulatory change.

The bill, which is expected to receive a final Senate vote early next week before going to the House, contains protections for young military members seeking and receiving the loans, including a 30-day window to revoke any agreement. A 2011 effort to change the lending rules by the industry got waylaid when military leaders actively opposed the loans.

Commanders at North Carolina military installations aren't taking a position this year, but the Navy-Marine Corps Relief Society wrote a letter to legislators expressing their opposition. The chamber defeated an amendment by Sen. Ben Clark, D-Hoke, that would have barred all armed forces members from getting the loans. Clark, a former Air Force officer, said during his service he saw too many fellow airmen get caught in debt.

"Often times these loans were the culprit," Clark told colleagues. But senators approved two other amendments with Clark, who was among eight Democrats joining all Republicans present in voting for the bill. The chamber also passed Gunn's amendment to scale back the interest rate cap on loans above $10,000, which appeared to change some minds in favor of the bill.

Attorney General Roy Cooper, a Democrat, wrote to Senate members before the vote urging them to oppose the bill because the proposal does nothing to reduce loan account renewals that he said are "trapping customers in a debt cycle."

"It makes common sense that what's bad for our armed services is harmful for all consumers," Cooper wrote.

The industry points to state employment figures showing the number of lending outlets has declined by more than 100 and industry employees by more than 1,000 from 2002 to 2011. The outlets allow residents in small towns and rural areas abandoned by large banks to receive installment credit with personal service, said Sen. Dan Clodfelter, D-Mecklenburg and another primary sponsor.

Without changes, Clodfelter said, "I do not believe this industry will be available to our citizens as a credit alternative in a very short period of time." Otherwise, he added, more borrowers will choose cash advances on credit cards that require no principal repayments and high interest rates, too.

But Sen. Ellie Kinnaird, D-Orange, who voted against the bill, said the top beneficiaries of the bill will be national financial service companies doing business in North Carolina, not mom-and-pop lenders.

The bill would allow lenders to charge up to 30 percent interest on the first $5,000 and 24 percent on the next $5,000. An 18 percent flat rate on the entire principal would be charged when the balance exceeds $10,000.

More than 460,000 consumer finance loans were issued in North Carolina in 2011, the most recent figures available. The majority of loans issued by dollar value are between $1,000 and $3,000, according to regulatory data.