N.H. caps rates on payday loans
Lenders contend new law will shut them down, drive consumers to Web
CONCORD, N.H. - New Hampshire is giving payday lenders the gong as it rings in the new year. A law that takes effect today caps the interest rate on small loans at 36 percent a year, which the industry has said will put it out of business.
Payday lenders typically charge $20 per $100 for two-week loans backed by the borrower's car title or next paycheck. That amounts to 1.43 percent interest per day, 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.
Supporters say the cap will prevent people from getting caught in a "debt trap" of not being able to repay high interest loans and having to roll them over into new ones.
Opponents, including South Carolina-based Advance America Cash Advance, say payday lenders can't make enough money under the cap to cover basic business expenses.
Advance America spokesman Jamie Fulmer tried to persuade lawmakers that thousands of people needing quick cash for a short time would lose a valuable option if the cap was enacted.
In December, Advance America asked Banking Commissioner Peter Hildreth's permission to change its loan offerings to an open-ended line of credit, charging between 365 percent and 456 percent in annual interest depending on whether the borrower allows automatic payment on the loan. Borrowers could establish lines of credit ranging from $500 to $750 and withdraw money in $10 increments.
Advance America said its proposal falls under a section of the banking law that covers small lenders that aren't payday lenders. The section does not cap interest rates.
Advance America also said it would stop providing payday loans today in compliance with the new law, but Fulmer insisted consumers still need access to small amounts of cash.
Fulmer said some customers might turn to Internet lenders not regulated by state laws.