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When state lawmakers capped the interest rates on payday loans at 36 percent in 2009 payday loan and How to Start a Car Title Loan Business car title loan lenders left New Hampshire in droves.
In 2012, the New Hampshire Legislature reversed the interest rate cap on title loans, overriding a governor’s veto to do it. Now, lenders can charge a monthly interest rate of 25 percent, the equivalent of nearly 300 percent over 12 months.
A car title loan is secured by a signature and a vehicle title. There is no credit check or verification of a borrower’s income, and a borrower can get access their funds immediately.
Under the New Hampshire car title loan law, lenders can loan a person up to $10,000 and no more than 35% of their total gross income. The New Hampshire title loan law allows lenders to renew the initial 30-day loan for 10 months. The title loan lender can charge 25 percent interest each month. A borrower must pay at least 10 percent of the loan’s original principal each month.
If the borrower fails to pay-off the principal, the lender can find them in default and take the car, motorcycle, recreational vehicle, or boat.
Read more: Payday Loan Industry Blog
Advance America announced it plans to close the 24 centers it operated in the State of New Hampshire. The decision to close the centers in New Hampshire comes after approval of legislation that went into effect on January 1, 2009 that effectively prohibits the offering of the cash advance product in that state, and follows the Company's previously announced decision to discontinue offering its line of credit product in New Hampshire as a result of an agreement with the state's Bank Commissioner.
Commenting on the closure of its centers in New Hampshire, Advance America's President and Chief Executive Officer, Ken Compton, said, "The recent law that went into effect in New Hampshire imposed a 36% annual percentage rate cap on payday loans, resulting in an effective ban of the industry there. Unfortunately, eliminating the payday loan product as an option does not eliminate the need for short-term credit in New Hampshire, it simply eliminates a sensible financial choice for thousands of hardworking people, and forces them into higher cost alternatives such as fees for bounced checks or late payments and risky loans from unregulated internet lenders. We are disappointed that a majority of legislators and Governor Lynch chose to take away a viable, regulated short-term credit option from New Hampshire residents and put hundreds of employees out of work, particularly during a period of broad economic instability."
By Associated Press Jan 2009
New Hampshire's banking commissioner has denied a payday lender's request to charge 365 percent interest on open-ended lines of credit.
Banking Commissioner Peter Hildreth ruled Tuesday that South Carolina-based Advance America Cash Advance Centers Inc.'s proposal was unreasonable and predatory. The payday lender had fought New Hampshire's 6-day-old law capping annual payday and title loan rates at 36 percent.
Under its new proposal, Advance America wanted to loan money under another section of the banking law that covers small lenders and does not cap interest rates. Advance America proposed charging between 365 percent and 456 percent in annual interest, depending on whether the borrower allowed automatic payment on the loan.
Hildreth said a consumer who borrowed $500 for a year and only paid the 365 percent interest would pay $2,325 in interest payments. He said that was oppressive. At the 456 percent rate, the same consumer would pay $2,780 in interest payments over a year.
"Brought down to its basic level, it just is not fair," Hildreth said.
Advance America spokesman Jamie Fulmer said the company generally did not agree with Hildreth's interpretation of the law and was considering its options. Hildreth said the company could appeal to the state Supreme Court.
"We remain committed to offering consumers access to credit products and high-quality service in a competitive marketplace, while doing everything we can to protect the jobs of the approximately 50 New Hampshire citizens who we employ," Fulmer said in a statement.
A state law took effect Jan. 1 capping the interest rate on payday loans at 36 percent a year, which the industry said would put it out of business. Advance America said last month it would comply with the new law, but proposed the new loan product that the company said was neither a payday nor title loan and consequently should not be bound by the law capping interest rates at 36 percent.
Payday lenders typically charge $20 per $100 for two-week loans backed by the borrower's car title or next paycheck. That amounts to an annual rate of 521 percent.
The cap translates to a daily interest rate of about 0.1 percent, or total interest charges of $1.38 _ a dime a day _ on a $100, two-week loan.
Advance America had proposed establishing $500-$750 lines of credit that borrowers could tap in small increments, with $10 being the smallest withdrawal. Advance America said the credit offering was covered by a section of the banking laws for small lenders that does not cap interest rates.
Hildreth said the state has a lot of lenders that fall into that category, but none have charged more than 50 percent in annual interest including loan penalties assessed on their borrowers.
Most offer small loans, such as $5,000, paid in monthly installments, he said. The lenders do credit checks on borrowers so they can charge low rates.
In his ruling, Hildreth said Advance America's proposal would be an unfair trade practice. He said the proposal's terms and conditions were vague and thus deceptive.
"The determination of unfairness and deception renders the company's argument regarding the type of loan _ small loan vs. payday _ moot," Hildreth wrote.
Hildreth said the Legislature's enactment of the 36 percent cap reflected its policy on such high-interest loans as being unfair.
"The unfairness was not that the loans were called payday or title loans. The unfairness was because of the interest rates charged," he wrote.
Hildreth said the ruling should serve as a warning to any other lenders with similar, high-interest products.
"It should, in fact, be a warning to them that they should check with the department before charging the rate," he said.
Otherwise, they could face a similar ruling, he said.
New Hampshire payday loan bill signed into law.
MANCHESTER, N.H. New Hampshire Gov. John Lynch signed House Bill 267, an act relative to payday loans, that caps interest rates for payday loans and car-title loans at 36% in the state.
The cap on payday loans takes effect Jan. 1, 2009.
When the state's small-loan rate cap was eliminated in 2000, payday lending was effectively legalized in New Hampshire.
Congress passed a 36% cap to protect military families nationwide at the request of the Department of Defenses.
For a thorough discussion of the payday loan industry and access to our payday loan training materials, we recommend you proceed to PaydayLoanIndustry.com
Bill to put a cap payday loans in New Hampshire will die in the state legislature.
State Rep. David Smith, D-Nashua, indicated he will fight a House sub-committee recommending an end for his legislation to cap, at 36 percent, what payday loan and title lenders can charge for small consumer loans.
"I'm very disappointed in the subcommittee's vote," said Smith, a retired banker.
Payday loan company officials suggestedif Smith's bill (HB 267) became law, they may leave the state.
A majority on the House Commerce Committee endorsed an industry sponsored plan to limit payday loans to $15 on $100 for a two-week note, which is an annual interest rate of 360 percent.
A majority on the subcommittee also recommended the industry's suggestion to cap their loans at $22 per $100 a month or 264 percent annually.
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.
The sub-committee will meet later to take formal votes on the alternatives to Smith's bills, which would also tighten state regulation and provide consumers with more protections.
All these measures will come to the full House of Representatives for a vote in 2008.
The state repealed interest restrictions on payday and title loans in 2003. A great many lenders set up offices in New Hampshire soon after, serving thousands of borrowers a year who live here or come from neighboring states that have loan restrictions.
Rep. Steve DeStefano, D-Bow, said putting these companies out of business won't keep working class residents from needing cash in an emergency. The options left to them will range from pricier Internet loans to loan sharks.
It is a certainty that those states not having payday loan safe-harbor legislation in place force their residents to drive across state lines, or use call centers and payday loan Internet operations; always more costly to consumers!