Payday loans still not a good thing for North Carolina

Payday loans still not a good thing for North Carolina

Statewide coalition pledges to oppose products offered by banks

Although payday loans are illegal in North Carolina, Alabama-based Regions Bank has recently decided to bring them back.

The last of the illegally operating payday lenders were kicked out in 2006. But now, Regions is offering North Carolinians 365 annual percentage rate (APR) loans. This out-of-state bank is exploiting a federal loophole that allows banks to ignore state usury laws.

Storefront and bank payday loans like Region’s “Ready Advance” are disguised as convenient and accessible ways to get small dollar loans. They come, however, with a financial catch that few borrowers can afford. After having to repay the entire lump-sum balance in 10 days or so, few borrowers have enough money left over to cover basic monthly living expenses. And so the predatory revolving debt cycle begins.

The typical bank payday borrower takes out 16 loans a year and remains in debt on these loans for 175 days. And just like other payday loans, the Regions product is so expensive that borrowers will typically pay more in interest than the amount they borrowed. The typical bank payday borrower pays $780 to borrow only $300.

A recent study by Pew Charitable Trusts found that African-Americans are more than twice as likely as all other ethnic groups to have used a payday loan. Nearly one in four bank payday loans are borrowed by seniors surviving on Social Security benefits.

The Regions payday loan is just a new name for an old predatory product. In at least one respect, the Regions version is even worse than their storefront cohorts: With control over the consumer’s bank account, Regions repays itself by directly taking the money owed – even if it triggers an overdraft. Earning payday loan interest and overdraft fees at the same time and from the same customer are nothing but double-dip lending.

Recently, Attorney General Roy Cooper commented on the Regions development and said, “Payday loans are like a consumer needing a life preserver being thrown an anvil. It gets them on a debt treadmill, oftentimes. We do not want North Carolina consumers subjected to payday loans.”

When it comes to small-dollar loans with high costs and short repayment windows, North Carolina law stands on the side of consumers. Interest rates of 365 percent are and should remain illegal.

Most importantly, if this consumer battle is not waged now, other lenders watching from the sidelines could follow Regions’ lead. Reportedly, SunTrust Bank may be considering doing just that. With its larger presence in North Carolina, such a move by SunTrust could inflict greater harm on our families’ wallets at a time when our state still struggles to recover from the recession and high unemployment.

Fortunately, a broad state coalition is fighting to end Regions’ payday lending. This coalition includes regional and statewide organizations advocating civil rights, faith-based, labor, economic justice, housing and community development.

Everyone who shares these lending concerns in North Carolina is encouraged to join this growing consumer effort by:

Related questions or requests for additional information should be shared with our CRL colleague, Susan Lupton at 919-313-8521 or susan.lupton@responsiblelending.org.

Both Charlene Crowell and Ellen Harkin work for the Center for Responsible Lending.