The New Hampshire House is expected to vote on legislation Wednesday that would limit how much interest so-called payday lenders can charge.
Supporters argue tighter restrictions are needed because the loans trap poor people in an endless cycle of debt.
Lenders argue that if lawmakers go too far, it could drive the industry out of the state.
New Hampshire Public Radio’s Dan Gorenstein reports.
James is an African immigrant who doesn’t want his real name used for hits story.
In 2003 he had a problem.
Rent at his Manchester apartment had climbed from $500 to $830 dollars a month.
1:52 and I thought payday loan was an option.
This is how the payday loans work.
For every $100 a person borrows, the loan company charges a $20 dollar fee.
So if you borrow $500, for example, you owe $600 dollars.
As collateral, the borrower writes the company a check to be cashed on payday.
If the borrower can’t repay the loan in two weeks however, there are no additional fees or penalties.
James made his payment on time.
But he could do it only by taking out another loan.
3:!6 so I went and I had to borrow again, pay it back and continue to borrow. That’s what happened.
Before James was through, he says he had taken out more than 50 loans from 5-6 different payday lenders.
9:42...it was a mess, really a mess.
New Hampshire Legal Assistance lawyer Sarah Mattson says a number of consumers have had gotten caught up in similar debt traps.
Mattson says that’s because many borrowers don’t have much money to begin with.
9:36 it’s a lot of money for working families that are struggling to get by, struggling to become part of the middle class, and these products keep pushing people down. And that’s really the tragedy of payday lending.
To address the situation, Legal Assistance along with other consumer advocates have supported House Bill 267, which caps the interest rate on these loans.
Under that measure, payday lenders would be able to charge only about $1.50 to borrow $100, instead of the current $20...essentially cutting the annualized interest rate from 521% to 36%.
Bill opponents say that’s unsustainable.
:36 a small group of people haven’t used the loans correctly, so what we are going to do is we are giogn to ban an entire industry b/c some people haven’t used them the way they are supposed to be used.
That’s Representative Steve DeStefano who sits on the Commerce Committee which held hearings on the measure.
DeStefano is reluctant to pass legislation based on anecdotes.
Some payday lenders say HB 267 supporters are using fear tactics- like James’ story- to get the measure through.
DeStefano says if there were such a big problem, people wouldn’t be paying back the loans.
:20 the people who use these loans, 92% of those people pay back their loans. And they understand they are paying a higher interest rate. But they understand it’s the only place they can go to get this money. It’s to fix the car, pay the rent....they understand what they are doing.
Ryan Stenger with Check N Go, the nation’s second largest payday loan provider warns if HB267 becomes law poor people are just going to be in worse shape.
Take for example, someone who bounces a check.
12:38 the check is going to get a bounced check fee, which is $35, then you get a $35 vendor check fee....Now you are up to 70....would a customer be better off to come to pay day lender in NH, take $100 loan, $20 fee...and pay $20 back, now that customer is saving $50.
Stenger says the smart solution is to compromise on how on much to cap the interest rates.
Senator David Gottesman, a co-sponsor of HB 267, doesn’t see that as an option.
He says he’s not convinced that slightly reduced rates would significantly improve the situation.
Gottesman says testimony from local welfare officials shows that the problem is endemic enough to require dramatic action.
1:02 the costs that are paid by these individuals as they are trying to repay these extraordinary rates, really are difficult for them. And when they can’t pay they turn to state and local agencies to get welfare, and when they do, unfortunately, we all pay.
Democratic Leadership in the House says there are more than enough votes to pass the bill.
Opponents even agree prospects to defeat HB267 look dim.
For NHPR News, I’m DG.
The truth is that not all payday loans are bad at all. There have been a number of stores and sites that have a positive outreach that you just don't hear about like cashloancity.com. The problem is the press picks up on the stores that charge 2,3, or 4 times the interest as some of these others.
Obviously people are using these payday lenders, or they would be out of business. I use them from time to time and I have no problem paying the fee. When I am in dire straits, it is well worth it. If I was to borrow money from a friend, I would probably pay him back more than $15 per $100. I say cap them where they are right now. That way they will stay in business and not leave those of us who have no other option with no way to get emergency cash. Here is an article showing the benefits of payday loans:
Payday lenders are the perfect target for politicians that want to seem compassionate. After all, a $15 fee on a two-week $100 loan amounts to an APR of 390% if the loan is rolled over for a year (accruing $15 every two weeks). What could be more evil than charging poor people 390% interest, right?
A recent study by the Federal Reserve Bank of New York suggests otherwise. As reported in the March issue of Reason Magazine, the study found that the citizens of two states where payday lending is banned "bounced more checks, complained more about lenders and debt collectors, and filed for Chapter 7 bankruptcy more often"1. Comparing payday lending to other options, the Community Financial Services Association of America noted that a $100 bounced check garners a $54 fee (equivalent to 1409% APR) and a $100 credit card balance can garner a $37 late fee (equivalent to 965% APR). As the study's authors write, "Forcing households to replace costly credit with even costlier credit is bound to make them worse off".
These things are helpful, leave them for those of us who can use them responsibly.
I just want to let the people know that I work for a
payday loan and stand strong for what they do. We are
getting a bad name for now reason. You act like we go out
and drag customers in and force them to do a payday loan. This is not
true. The customers know everything and sign everything before the loan is done. We have lots of support from our customers. It helps them
out when times are tough. It would depend on the customer on how
many times they would need to borrow. I like my job and and if this
is banned it will also eliminate jobs. This world is poor and
people work hard for there money and have not much to show. The
cost of living keeps going up and gas and groceries are out of
control. We do good things where I work and we do care about the customers.
I support pay day loans.