House panel OKs return of payday loans

Complaints against payday and other high-interest small lenders nearly doubled in New Hampshire after they were effectively banned from the state in July 2010 — a statistic that supporters seized on Wednesday in moving forward a bill that would bring the industry back.The number of complaints against small lenders rose from 31 in the year before the loans were banned to 58 in the year afterward, the New Hampshire Banking Department told a House Commerce Committee subcommittee Wednesday.Some 52 of those post-payday complaints were against unlicensed lenders, most offering payday loans via the internet.”We know they exist. We know they are there,” said Rep. Jenn Coffey, R-Andover who chairs the subcommittee. “We made them illegal and they are getting them off the Internet. They are not inaccessible, so why not license them? I’d rather be dealing with a company in the state, than running out of California or God knows where.”Commerce Committee Chair Rep. John Hunt, R-Rindge, compared bringing payday loans back to legalizing marijuana. “At least we will bring it under some control,” he said — a statement that raised a few eyebrows.The Banking Department does go after out-of-state unlicensed lenders and posts its orders against them on the Internet. While that might not stop Internet lending, it could discourage some consumers from using them, or larger states from licensing them.Sarah Mattson, a New Hampshire Legal Assistance attorney who opposes the payday loan industry, explained the complaint jump this way: Consumers trapped in a cycle of debt in a payday loan really don’t have much of remedy when the industry is legal, so they don’t bother complaining. But now that they know it is illegal, they are more likely to speak up. By passing a bill that would make them legal again, “it would take away a remedy to turn this into a situation when there is not a remedy.”The Legislature capped the interest rate on small lenders at 36 percent, the same cap the federal government puts on loans to members of the active military.But for payday loans, the annualized percentage rates sometimes exceed 1,000 percent.The industry, however, argues that the annual percentage rate should not apply to short-term loans such as theirs. For instance, more than 93 percent of Advance America’s loans were paid back in two weeks, said lobbyist Alexander Koutroubas.If traditional banking, like credit unions, could offer short terms loans with lower interest rates, they would, but they haven’t, he said.It’s an argument echoed by Hunt.”Thirty-six percent would be fine if it is a long-term loan, but this is a different kind of loan,” said Hunt.Opponents, however, said that there were loopholes in the new installment loan law that would allow repeated rollovers, effectively turning them into long-term loans.Nevertheless, the subcommittee voted to pass the installment loan bill — Senate Bill 160 — by a 7-2 margin. The bill is likely to clear the full committee and has a good chance of passage in the House. — BOB SANDERS/NEW HAMPSHIRE BUSINESS REVIEW