House panel weighs payday loan rate cap

Should the state Legislature effectively wipe out the short-term loan industry by reimposing an interest rate cap it lifted eight years ago?

That was the question that House Bill 267 sparked Wednesday at a House Commerce Committee hearing that brought out both sides in full force.

Lining the hallways were supporters – primarily employees – of Advance America, the biggest so-called payday loan lender in the state, but coming up to the microphone for the most part were those from social services agencies, who testified that the high-interest loans, with annual percentage rates of more than 500 percent, did more harm to credit-hungry borrowers than good.

The number of such loans made in New Hampshire has tripled in the last four years to 150,000, testified Bank Commissioner Peter Hildreth, who now backs a cap on payday loan interest rates because he was worries that the state – the only one in northern New England without a cap — is becoming a magnet for high-risk loan companies.

At issue was whether the state should bring down that interest rate to 36 percent – the same cap the federal government imposes on loans to active military personnel that should go into effect at the end of this year. The cap was imposed to limit the effect of short-term, high-interest lenders, which surround most military bases.

Supporters said that the state should provide the same kind of protection to New Hampshire citizens. They argued that short-term lenders target low-income areas.

Kelly Darling-Snow, for instance, a case manager for the Keene Human Services Department, reported that 42 percent of the agency’s clients use short-term lenders, including about a fifth of the residents in a homeless shelter located two blocks from a loan company.

Gordon Allen, executive director of the New Hampshire Council on Developmental Disabilities, said that his clients were particularly vulnerable.

“Payday loans are the LSD or the crack cocaine of the financial services industry,” he said. “You are desperate. You feel pretty good when you get the money, until the long-term affect of what you are doing kicks in.”

That analogy caused an audible gasp from some of the Advance American workers, none of whom testified at the hearing. But it did bring a response from one Advance America customer – Megan Tracy of Concord, who said that she was once addicted to drugs and knows the difference.

“I know what I’m getting into,” she said. “I make a conscious, informed decision.”

Tracy said that she writes a $240 check for a $200 loan for two weeks. Advance America can simply cash the check if she doesn’t come back. Sometimes she obtains the money to make ends meet until her next Social Security disability check comes in. Other times it is to treat her son to something that she normally couldn’t afford. She said she doesn’t have to go to church for food because of the ready cash.
And, she said, it’s better than facing a bounced-check fee.

“If I don’t take this, I’m not going to get the loan,” she said. “Why are people trying to take that away from me?”

But Allen and other advocates said that by providing such “temptation,” consumers are less likely to spend within their budget or seek out the help they need to avoid falling into the “debt trap,” in the words of Sarah Mattson, an attorney with New Hampshire Legal Assistance.

She mentioned the case of one client on welfare who racked up some $2,000 in interest, taking out some 30 loans to pay rent.

“She wanted to make her financial situation better, but she made it a lot worse,” Mattson said.

Instead, proponents of a rate cap pointed to a variety of alternatives, ranging from social services agencies to families to employee assistance programs – to help tide people over.

Industry lobbyists countered that such programs don’t fulfill the growing need for the service their clients offer – or the industry wouldn’t have such a market.

Advocates noted that in the past other states – and New Hampshire itself, before 1999 – got by with interest rates capped lower than 30 percent, without noticing a crying need for such lending.

Lawmakers questioned whether the problem is with title loans – for which the borrower signs over the title of the car as collateral, rather than writing a check.

The Legislature passed a law limiting payday lenders from rolling over loans several years ago, but the practice is still legal for title loans. However, payday lenders get around that by simply issuing a new loan minutes after borrowers pay off the old one. Such repeat loans – which only account for a small percentage – are not technically rolled over because the interest is paid off and not rolled into the principal, testified Carol Stewart, vice president of government affairs for Advance America.

But rate cap proponents said that the repeat borrower sometimes ends up paying as much as 10 times in much in interest than the amount originally borrowed.

The one fact that everyone agreed on was that a 36 percent cap would drive the short-term lending business out of the state, as it has in other states.

“It’s prohibition on the industry,” said Stewart.

Stewart seemed to be getting a sympathetic ear from a Commerce Committee, which has been hostile to interest caps ever since they were lifted in 1999.

“This is a $145 million industry in the state,” said Rep. Stephen T. DeStefano, D-Bow. “Why would we want it to go away?”

DeStefano was chairing the meeting in place of Rep. Tara Reardon, D-Concord. Reardon, who has opposed interest rate caps in the past, is married to Jim Bouley, who was on the payroll of Advance America last year and who is the son of Richard Bouley, who is currently a lobbyist for the Community Financial Services Association, a national group presenting payday lenders.

Richard Bouley was present at the hearing but did not testify. Reardon also was at the hearing but did not ask any questions.

When previously questioned on the matter, Reardon said that she had no conflict of interest, since her husband no longer lobbies for the industry and she received no direct benefit from her father-in-law’s involvement. She did not comment Wednesday on why she was not chairing the hearing and will not be on the subcommittee working on the bill. – BOB SANDERS