Panel won’t let House vote on interest cap

The state House of Representatives will not be able to debate a bill imposing an interest rate cap on short-term loans this session, thanks to a March 20 vote in the House Commerce Committee.

The committee voted to retain the bill, meaning it will be kept in committee until next year. If the bill had reached the floor, a heated floor fight would likely have resulted over whether to pass the measure, which effectively would eliminate so-called payday and title loan lenders – businesses that suddenly flooded the state after 1999, when New Hampshire became the only one in northern New England to lift usury rates.

The lenders offer short-term loans at a more than 500 percent annual rate, secured by either a personal check or car title. House Bill 267 would have capped interest rates at 36 percent, the same cap the federal government applies to loans offered to active-duty military personnel.

The committee also voted to retain two other bills that called for even more stringent interest caps.

Companies like Advance America – the state’s largest payday lender – have contended that the 36 percent rate would translate into a dime a day interest on a $100 two-week loan.

Advance America CEO Ken Compton was delighted with the result, saying that committee members “have shown a willingness to explore reasonable reform and Advance America is committed to working toward our shared goals on this matter.”

However Sarah Mattson, a New Hampshire Legal Assistance attorney who has been leading a campaign to cap interest rates, was disappointed with the committee action.

Mattson said that she didn’t think the committee – which has long been hostile to an interest rate cap – would recommend passage, but she had hoped for “an up or down vote so we could have gotten this issue to the floor,” even if the committee recommended killing it.

Citing a four-hour public hearing earlier in the month, she said, “this has been one of the hottest topics in the Legislature this year. It deserves a vote on the floor.”

For that hearing, supporters – primarily employees of Advance America – lined the walls, coming before the microphone for the most part were those in social services agencies who testified that the high-interest loans did more harm to credit-hungry borrowers than good.

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 one.

Gordon Allen, executive director of the New Hampshire Council on Developmental Disabilities, said 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 America workers, none of whom testified at the hearing. But it did bring a response from one Advance America customer – Megin 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 made a conscious, informed decision.”

Tracy said that she writes a $240 check for $200 loan for two weeks. Advance America can simply cash the check if she doesn’t come back. Sometimes the money is 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 it’s better than facing a bounced check fee, she said.

“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 Mattson of New Hampshire Legal Assistance.

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

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

Other customers wrote or called committee members, who said they did not hear directly from alleged victims of the industry.

Advocates pointed to a variety of alternatives for payday borrowers, ranging from social services agencies to families to employee assistance programs, to help tide people over. Industry lobbyists countered that such programs didn’t fulfill the growing need – or the industry wouldn’t have such a market.

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

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

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