NC consumer loan changes clear Senate panel

RALEIGH, N.C. (AP) -- North Carolina's installment loan industry would be able to charge higher interest rates for many customers and more fees in a bill that cleared a Senate panel Tuesday despite arguments from consumer advocates the bill would put more borrowers deeper in debt.

The Senate Commerce Committee, on a voice vote with some Democrats in opposition, recommended the measure that would adjust the interest rate structure and raise the borrowing amount limit on consumer finance loans, which have been essentially unchanged in 30 years.

The industry, which issues more than 400,000 loans annually of up to $10,000, would be able to lend up to $15,000 per individual if the bill becomes law. While the maximum interest rate allowed would fall from 36 percent to 30 percent, commonly-issued loans above $1,000 up to $5,000 would see higher rates.

Primary sponsor Sen. Rick Gunn, R-Alamance, said the bill would cost the average borrower hardly more than $1 per month, while at the same time help an ailing consumer finance industry that has gone through a period of consolidation and declining workforce.

"I believe after 30 years of inflation and normal business increases, some reasonable adjustments are necessary," Gunn said. "Credit should be available and at reasonable terms."

A similar bill narrowly passed the House in 2011 but died as opposition grew among commanders at North Carolina military installations worried the higher rates would harm young soldiers and Marines who often turn to the outlets for financial assistance. Additional protections for young members of the military were added to this year's bill, which has prompted the commanders to take no position on the bill.

But several civilian attorneys and financial counselors said the interest rate restructuring, along with proposed late fees and deferred payment fees, would still hurt other groups, such as retirees and single parents.

Triangle Family Services credit counselor Rebecca O'Connell estimated up to 30 percent of her clients per month report having an installment loan, including one couple who had five of them simultaneously. Speakers said borrowers are also encouraged to purchase needless insurance that gets added to the loan balance.

"Under the current rate and fee structure, my clients are struggling under mountains of debt," said Stephanie Ceccato, an attorney with Legal Services of Southern Piedmont in Charlotte. She added that the bill — now headed to the full Senate — would "allow the finance companies to crush them even further."

They point to industry data collected by the state banking commissioner showing two-thirds of all loans made in 2011 renewed existing accounts. That's proof, they argue, of what's called "flipping," when customers who can't pay off their initial loan are refinanced into a new loan they can't pay either.

Industry representatives said the data only prove they have loyal customers who may return to get a new loan as they near the completion of their current loan. Lenders say they closely review loan applications and won't issue loans to people who are bad risks. A state Commissioner of Banks' report said that while 440,000 loan applications had been approved in 2011, nearly 379,000 had been denied.

"The worst thing I can do is make a loan to a customer who can't afford to repay it," said Erin Wagner, president of the Resident Lenders of North Carolina trade group and executive at her family's loan business in Winston-Salem.

A broader 2011 examination of the industry by the banking commissioner didn't recommend any changes to the consumer finance laws. Then-Commissioner Joseph Smith said lending outlets still had the "potential for profitability" under the existing rules and that he saw "no compelling evidence" that refinancing was an abuse of consumers.

The state Department of Justice, led by Democratic Attorney General Roy Cooper, opposes the bill, department special counsel Jennifer Epperson told the committee. The industry is issuing more loans following the recent credit crunch and doesn't need to raise rates on consumers, she said.

The office of Republican Gov. Pat McCrory, who may be asked to sign the bill into law, has raised concerns about a separate effort to revive payday loans in North Carolina because of how they may hurt families by incurring debt.