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Proposed legislation would allow small loans with interest rates above state maximum

MARK JOHNSON

mjohnson@charlotteobserver.com

RALEIGH - Top state officials and consumer groups warned this week that a Charlotte lawmaker’s bill could resuscitate the payday lending industry that was effectively killed off earlier this year.

Attorney General Roy Cooper, a Democrat who played a central role in forcing payday lenders out of the state, said a bill sponsored by Rep. Beverly Earle, D-Mecklenburg, would allow small consumer loans with interest rates that are too high.

"We shouldn’t rush to replace payday lending with another product," Cooper said, "that could hurt people who have trouble making ends meet."

Earle said her bill does not allow interest rates as high as payday lenders charged but does allow higher rates than the state maximum of 36 percent. Customers who are bad credit risks can’t get unsecured loans, she said.

"There needs to be a vehicle out there where people can get small loans," Earle said. "The banks don’t do it."

The legislation could revive the battle over payday lending in the state after state leaders, legislators and regulators spent years forcing the industry out. The major companies signed a legal agreement in March to shut down, three months after the state’s banking commissioner ordered one firm to stop operations.

Such businesses are part of a wave of high-rate lending that has grown into a $40 billion industry in the past decade, catering to low-income and high-credit-risk customers.

Customers borrow money they must pay back after their next payday, plus a hefty fee. A borrower getting $500, for example, writes a check dated two weeks later for $600. That’s an annual interest rate of more than 500 percent. (more…)

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This entry was posted on Wednesday, May 31st, 2006 at 4:16 am and is filed under Daily News. You can follow any responses to this entry through the RSS 2.0 feed.