House panel kills 36% payday loan cap

A New Hampshire House subcommittee voted Oct. 18 against a 36 percent cap on payday and title loan interest rates, endorsing instead an interest rate nearly 10 times higher that had been proposed by the industry as a “compromise.”

The full House Commerce Committee – which has long shot down interest rate cap proposals — is expected to endorse the position at the end of the month. But a floor fight is expected on the issue when the House session begins early next year.

The industry-proposed rate for payday loans (loans secured by a check) is $15 per $100 every two weeks, which translates into roughly 300 percent a year. For title loans (loans secured by a car title), the maximum rate would be $22 per month, or 266 percent.

These were the first caps proposed by an industry that had previously been hostile to any interest rate limits.

“It’s a good cap,” said Dick Bouley, a lobbyist with the Community Financial Services Association of America, a payday industry trade group. “We are not happy with it, but we can live with it.”

But opponents of the proposal said that the limits were not much more than what the industry was charging anyway.

“This will do nothing to stop the debt trap,” said Sarah Mattson, an attorney with Community Legal Services. “These caps won’t do it.”

State Banking Commissioner Peter Hildreth did not back the industry cap, instead reiterating his support for a 36 percent cap.

The payday bill informally endorsed by the subcommittee would replace a bill by Rep. Neal Kurk, R-Weare, that would have brought back the across-the-board anti-usury law that the Legislature scrapped in 2003. After the anti-usury law was eliminated, New Hampshire’s door was opened to the high-interest loan industry, and it quickly proliferated. Today it makes some 150,000 loans a year.

The main discussion over the title loan bill was whether to limit the interest rate to 6 percent during the 90 days in which the lender was repossessing the borrower’s car.

Industry lobbyists argued that it should remain at 265 percent, or the borrower would have an incentive to hide the vehicle. The subcommittee decided to back that limit anyway.

The industry has argued that the 36 percent rate cap – the federal rate cap for loans to active-duty military personnel – would drive it out of the state.

“I can’t support a bill that will put people out of business,” said Rep. Matthew Quandt, R-Exeter.

“Consumers will have nowhere else to go,” echoed Rep. Stephen DeStefano, D-Bow, who has been chairing committee hearings on the payday loan issue ever since House Speaker Terie Norelli, D-Portsmouth, asked the committee chair, Rep. Tara Reardon, D-Concord, to recuse herself from heading up the panel on this issues because she is related to Bouley and other industry lobbyists.

But Rep. Stephen Spratt D-Greenville, said that consumers seemed to manage before the state lifted the anti-usury law.

“We have some moral responsibility here,” Spratt said. “Someone is going to have to pick up the burden of people who can’t afford to pay off these loans.”