Payday Loan Laws

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North Carolina Payday Loan Laws & Legislation

It seems the citizens of North Carolina are finally being heard. They want access to small dollar loan products via stores rather than exclusively by applying online or driving across state border lines. North Carolina Payday Loans.

Payday loan laws sunset (expired) in North Carolina in August of 2001. Payday loan lenders were offered the option of either becoming a licensed consumer finance lender and abiding by North Carolina usury laws or closing operations.

North Carolina Payday loan laws. North Carolina Payday loan legislation. North Carolina does not have specific payday loan safe-harbor legislation. At this time, the best approach is to offer payday loans via the Internet, one of the alternative methods (cash rebates, ISP model, etc.) discussed in our training materials, or the newest model, the CSO (Credit Services Organization) approach.

Consumers who use payday lenders may not have the option soon because of a decision Thursday by the state banking commissioner.

The ruling only ordered Spartanburg, S.C.-based Advance America, one of the nation’s largest payday lenders, to stop selling cash advances. But the reason behind the decision applies to any lender that outsources certain functions to out-of-state banks to circumvent state laws capping interest rates, the state attorney general said.

“This decision means that payday lenders using this rent-a-charter model are operating illegally in North Carolina,” Attorney General Roy Cooper said.

Payday lenders can charge interest rates exceeding

400 percent per year. Customers write a check, post dated to their payday, that includes the loan amount plus interest, generally a minimum of about $15 for every $100 loaned.

State law caps annual rates on small loans such as those sold at payday lenders at

36 percent.

From 1997 to 2001, payday lending was legal.

But state legislators did not renew the legislation allowing it.

Since then, payday lenders have operated by affiliating themselves with out-of-state banks. Those partnerships have previously pre-empted state regulation under the Federal Deposit Insurance Act.

Commissioner Joseph Smith Jr. found that Advance America flouted the law by saying it was only an agent of out-of-state banks when, in reality, it received the bulk of customer fees.

For example, Smith determined that Advance America continued to operate after the state’s law expired by contracting the funding and underwriting of its loans for a fee equal to about 10 percent of its revenue.

“We’re disappointed by the ruling, especially given the fact that we provided such detailed records in support of the legality of our operations,” Advance America spokeswoman Patsy Alston said Thursday afternoon. “The ruling works to eliminate one of the few short-term financing options that North Carolina citizens have.”

Spokesmen for two other large payday lenders in the state, Check ’n Go and Check Into Cash, did not return phone calls Thursday.

Advance America can appeal the ruling to the state courts and to the full N. C. Banking Commission.

The company stopped selling loans in North Carolina in mid-September when First Fidelity Bank of Burke, S.D., said it was suspending its arrangement with the company. Advance America attorney Saul Pilchen, of Washington, did not return a phone call Thursday afternoon seeking comment.

State Rep. Earl Jones, D-Guilford, who favors allowing payday lenders to operate in the state, said the ruling does not eliminate the demand for services offered by the stores.

“There’s a need that’s not being filled, and that’s why this industry was able to thrive,” he said.

“Consumer groups and the banking industry need to come up with legislation or policy that meets the needs of lower middle-class working people,” he said.

The alternative is people turning to online lenders and other unregulated sources, he said.

Earlier this year, a spokeswoman for Wachovia said the bank had no plans to offer payday loans. A spokesman for Bank of America declined to comment about the issue at the time.

In October the chief legal counsel for the N.C. Pawn Broker’s Association said he expected to see an increase in business at members’ shops if the commissioner decided to shut down payday lenders.

Mark Pearce, president of the Durham-based Center for Responsible Lending, said people would have other options, such as credit unions, credit cards and other commercial lenders that offer more reasonable interest rates, to meet their financial needs.

“If there is a need, it’s already being met,” Pearce said. “North Carolina families struggling to make ends meet should no longer be ensnared in the payday lending trap.”

The State Employees’ Credit Union offers salary advances to members at 12 percent — a lower rate than payday lenders. The program forces borrowers to save by putting 5 percent of each loan into a savings account as collateral and limits withdrawals from the account. Not everyone is eligible to join the credit union.

“Our focus is getting people to the point where they don’t have to use the service,” spokeswoman Leigh Brady said.

Contact Marta Hummel at 373-7070 or