Payday lending: a blight on our state
Legislation to regulate payday lending will be voted on early in January, when the House and Senate are back in session in Concord. For those unfamiliar with payday lenders, they are in the business of making small loans to people until they get their next paycheck. They typically charge their customers 20 percent to 25 percent interest for a two-week loan. That’s an annual interest rate of more than 500 percent, or five dollars in interest for every dollar borrowed. This is simply usury.
Payday lenders target our most economically vulnerable citizens — the working poor, single mothers, financially naïve young people, and seniors on fixed incomes. These people share the daily problem of trying to deal with the increased cost of necessities on incomes that are not growing. They come to payday lenders when they are desperate to borrow a few hundred dollars, thinking they will be able to pay it back on their next payday. But the fact is that most are unable to repay the loan when it is due and are forced to extend their loan several times. Before they get out of this debt trap, they end up paying the lender more in interest than the original amount of the loan. Last year, payday lenders took more than $10 million in excess interest from over 15,000 New Hampshire residents.
Payday lenders claim they are in the business of helping people get through the occasional financial emergency. But this could not be further from the truth. The industry’s own data shows that less than 2 percent of loans go to people who borrow money just once. Most loans go to people who will borrow money 12 or more times in a year.
To put this in perspective, someone who takes out the average size loan of $400 once a month will pay $1,000 in interest charges. This is a staggering expense for someone who doesn’t have $400 to begin with. It’s no wonder that 80 percent of our town welfare officers say they have worked with people who have been hurt by payday lenders.
The lenders say that if we get rid of their industry, people will have nowhere else to turn for cash in an emergency because banks no longer make loans for less than $500. But in fact there are plenty of other options — consumer loan companies, loans from friends and family, employer loans, aid from local churches and social welfare groups and town welfare officers. Recently, four credit unions announced their own short-term loan programs. All of these credit sources are readily available with no interest or at interest rates that are a tiny fraction of payday loans.
Payday lending is not just a Granite State problem. In 2006, our military generals went to Congress and told them payday lenders were a danger to our nation’s security. Many soldiers were so in debt to these lenders that they could not get security clearances or perform their missions effectively. Congress understood the threat and passed bipartisan legislation to cap the interest rate for our soldiers at 36 percent.
New Hampshire owes our own citizens this same level of protection.
In January, three bills dealing with payday lending will be debated in Concord. Two of the bills were written by the payday industry and cap the interest rate they can charge at “only” 390 percent for payday loans and “only” 265 percent for related car title loans. Should we trust the industry to regulate itself? The answer is no. In state after state, payday lenders have shown that they will fight to evade and avoid reasonable restrictions designed to protect borrowers.
The third bill, House Bill 267, was written with the goal of protecting consumers. It sets the maximum interest rate that can be charged at a fair and reasonable 36 percent per year. This bill has the support of our state’s banking commissioner, the New Hampshire Child Advocacy Network, AARP-NH, New Hampshire Legal Assistance, the state Local Welfare Administrators Association and other social service agencies. It deserves the support of the entire Legislature, the governor, and the citizens of the state. It’s time New Hampshire stood up for its disadvantaged and told payday lenders to stop preying on them.
Michael Marsh is a Democratic state representative from Greenland.