Bill would force payday lenders to close

New Hampshire would join four other New England states in closing the doors on payday and title loan shops if legislation to cap interest rates is approved.

Currently, New Hampshire and Rhode Island are the only New England states whose laws make payday loans profitable, said Jamie Fulmer, director of investor relations of South Carolina-based Advance America Cash Advance Centers Inc.

By NORMA LOVE , CONCORD, N.H. Found at businessweek.com

If New Hampshire joins its neighbors in capping interest rates, payday and title loan companies will close in the state, Fulmer and New Hampshire Banking Commissioner Peter Hildreth said Tuesday.

"People have to understand that means there won't be any (payday lenders)," said Hildreth, who supports a cap.

The House scheduled hearings Wednesday on three bills to cap interest rates on the loans. Most of the attention is on a bill that would cap the annual rate at 36 percent and only allow people to take out the loans once every 60 days.

Hildreth said that is intended to stop people from rolling over the loans, effectively prolonging their debt.

Payday lenders offer quick cash advances for a fee, often secured by a postdated personal check from the borrower. Title lenders offer cash loans based on the value of the borrower's car. Customers are drawn to the lenders because, unlike banks, they don't run credit checks.

Borrowers who don't repay title lenders lose their cars. Payday lenders may work out a longer payment plan to attempt to get their money back. Critics say some borrow increasing amounts, winding up deeper in debt.

Fulmer insists 95 percent of Advance America's customers repay the loans.

"What happens in states where the product doesn't exist, consumers are forced to turn to more expensive options," he said.

"Some are able to turn to a friend or family member," he added. "The majority have very few options."

Fulmer argued the loans fill an important gap, mostly for working middle-income families with an average income of $41,000. Without payday loans, they may choose instead to pay a bill or rent late, or to bounce a check regardless of the impact on their credit rating or the fees they incur, he said.

Advance America charges consumers $20 per $100 in cash advanced, up to a maximum $500 loan in New Hampshire. A $100 loan plus the $20 finance charge borrowed for two weeks works out to a 521 percent annual interest rate.

Under Rhode Island's law, the same $100 loan by the company carries $15 in interest over two weeks -- working out to a 391 percent annual interest rate.

Sarah Mattson, an attorney with New Hampshire Legal Assistance, says New Hampshire has plenty of more affordable alternatives to payday and title loans -- including churches, town welfare offices, zero-interest advances from employers and working with creditors on payment plans.

"There really are places people can go in our state when they have a gap in income that needs to be bridged," she said. "That's what people are doing in other states."

In 1999, New Hampshire repealed an interest cap on small loans after lenders complained to lawmakers that the credit card industry had moved into their market.

State Sen. Lou D'Allesandro, the repeal bill's sponsor, said Tuesday the law was changed to ensure people who had problems getting credit could get a loan. The law may need to be fixed, but not so drastically that the group with poor credit are shut out of the market, he said.

"Are we going to force those people to illegal, illicit loan sharks?" he said.

Last year, New Hampshire issued licenses to three title loan companies and eight payday loan companies, according to the Banking Department.

Payday loan companies issued 149,836 loans worth nearly $56 million. The average loan was $374. Title loan companies issued 10,254 loans worth $7.6 million. The average loan was $738.

The numbers for both have roughly tripled since 2003.

Fulmer said Advance America couldn't cover its overhead at the proposed cap and would close its 20 stores in New Hampshire.

"When you talk about a 36 percent interest rate on a two week loan, that equates to $1.38," said Fulmer.

Last year, Congress imposed a 36 percent annual percentage rate cap on payday loans to military service members after reports showed thousands of troops in debt to payday lenders, many of which are clustered outside bases.

Fulmer said Advance America stopped lending to military families before the law passed.

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