NC loan biz tries military changes to win support
RALEIGH (AP) — Companies that issue more than 400,000 installment loans annually in North Carolina are again lobbying hard for the ability to raise borrowing costs on many of their customers, two years after the military and consumer advocates help sink a similar effort.
The state’s consumer finance industry hasn’t seen a marked change in interest rate and borrowing amount caps in 30 years, making it more difficult to turn a profit and keep open small-town offices, according to lenders.
“You basically have got 1983 prices trying to cover 2013 operating expenses,” said Chris McKinley, owner of Burlington-based Green Cap Financial, a lending company that started 15 years ago. He said his company branches and employees have fallen by about one-third since their peak.
Industry groups have returned this year with revamped legislation compared to 2011, when a bill barely cleared the full House and died in the Senate. Many opposed the measure for worries it would hurt young service members naive about seeking credit.
While others haven’t budged from their opposition, commanders at North Carolina’s military installations who opposed the 2011 bill say they’re officially taking no position on this year’s proposal as of now — a success for supporters.
“We’re guardedly optimistic,” said Ken Kinion with the North Carolina Financial Services Association, which represents largely national lenders Springleaf Financial Services and OneMain Financial. “We’ve identified the groups that had some opposition against us a couple years ago and we’ve worked very diligently.”
The new legislation, expected to be debated in a Senate committee early next month, would reduce the maximum rates companies could charge on small-denomination loans. But interest rates would actually go up on the most common-type loans and allow borrowers to charge late fees.
“We don’t believe these provisions adequately protect military personnel,” retired Adm. Steve Abbot, CEO of the Navy-Marine Corps Relief Society, wrote to legislators last month. He added that raising rates and fees “will only make these products more toxic.”
This year’s proposal, sponsored by nearly half of the 50 senators, would require company-level commanders to be notified before a loan is issued to one of their lower-ranked soldiers, airmen or Marines. A loan to a service member also could be canceled within 30 days. Minimum loan terms for all borrowers also would be doubled to one year.
The number of consumer lending offices in the state has fallen by about 100 offices to less than 500 and the number of employees has decreased by more than 1,300 since 2002, according to state figures. Some of the reductions can be attributed to industry consolidation.
Lenders can choose to operate under two rate structures. The most common one allows them to write loans of up to $10,000. They can charge 30 percent on the first $1,000 and 18 percent on the next $6,500. An 18 percent flat rate on the entire principal is charged when the balance exceeds $7,500.
Another interest structure not commonly used for loans up to $3,000 with a maximum 36 percent rate would be eliminated in legislation filed by Sen. Rick Gunn, R-Alamance, and 22 others. Instead, the maximum loan amount of $10,000 would rise to $15,000. Lenders could charge 30 percent on the first $5,000, 24 percent on the next $5,000 and 18 percent on the last $5,000. The highest volume of loans has consistently been between $1,000 and $3,000.
McKinley, who is part of the Resident Lenders of North Carolina trade group, said the vast majority of the loans would see a “modest increase” of a few dollars per month. Borrowing $10,000 over five years would cost about $47 more a month or $2,800 over the life on the loan.
Consumer advocates point to data showing two-thirds of all were made to renew existing accounts as proof too many customers are caught in a debt cycle through refinancing current loans. Needless insurance products also add thousands of dollars in additional interest over a loan’s life, they say.
“The military was concerned enough that these kinds of loans could cause real problems for their enlisted personnel that they got special protections put in,” said Chris Kukla with the Durham-based Center for Responsible Lending. “It then illustrates that this is a financial product with significant peril.”
A comprehensive industry study in early 2011 by then-state banking Commissioner Joseph Smith— who recommended no changes to consumer finance rules — seemed to partially burst arguments from both sides.
The report said companies had a profit margin of between 9 percent and 10 percent. Smith wrote that while installment lending isn’t a growth industry, “the potential for profitability continues to exist under the existing framework.” Smith also wrote he saw “no compelling evidence” that refinancing was an abuse of consumers.
The Resident Lenders of North Carolina and N.C. Financial Services Association have 10 registered lobbyists combined this year, according to state records. Donors related to consumer finance companies have been giving campaign donations to General Assembly members for years. State Board of Elections records show legislative candidates, Gov. Pat McCrory and others reporting a combined $41,900 from the Resident Lenders PAC during the 2012 election cycle.