A payday loan lender cannot continue to offer short-term loans at interest rates exceeding 350 percent a year, a top official has ruled.
The New Hampshire Legislature at the behest of former state Rep. David Smith, D-Nashua, imposed a 36 percent cap on payday and title loans that took effect six days ago.
But lawyers for one of the leading payday loan firms – Advance America Cash Centers Inc. – argued state-banking laws let it extend open-ended credit lines of at least $500 in $10 increments to consumers.
This credit card-like form of lending would contain no interest if the money was paid back within a month.
If it was not, the interest owed each year would range from 365 percent to 456 percent, depending on whether the borrower allowed automatic payment on the loan.
Banking Commissioner Peter Hildreth disagreed, holding that such open-ended loans constitute an unfair trade practice and would be "deceptive" and "unscrupulous."
In his five-page ruling, Hildreth pointed out that someone taking out a $500 loan at a 356 percent interest rate would have to make $2,325 in interest payments.
"A loan that envisions paying interest over 5.5 times of the principal of the loan is unscrupulous," Hildreth wrote.
Lawyers with Advance America were reviewing the company's options and may decide to appeal Hildreth's decision to the Supreme Court.
"We remain committed to offering consumers access to credit products and high-quality service in a competitive marketplace, while doing everything we can to protect the jobs of the approximately 50 New Hampshire citizens who we employ," spokesman Jamie Fulmer said in a statement.
Hildreth said the credit lines envisioned by Cash Advance ran afoul of the Federal Trade Commission standard that his office applied to determine if the terms didn't meet state law.
The Legislature had given his office broad authority to determine whether any bank activities were a violation of the state's Consumer Protection Act.
Hildreth referred to the terms and conditions of the loan as vague and "thus deceptive.''
"To charge up to 356 percent (annual percentage rate) or more to consumers with no other options is contrary to the idea of consumer protection," Hildreth said.
Payday lending company executives fought the interest rate cap and predicted it would cause them to leave the state as they have had to do in other states where lawmakers took similar actions.
They noted there have been few individual complaints launched with state regulators since the Legislature moved in 1999 to remove from state law an interest rate cap on short-term loans.
Legislative supporters pointed to national studies that concluded a high percentage of those taking out these two-week loans ended up filing for personal bankruptcy.
House Speaker Terie Norelli, D-Portsmouth, had been critical of Advance America's bid to try to continue its business through a legal loophole in state law.
"I am pleased that the banking commissioner has fully embraced the intent of the Legislature to prohibit predatory lending practices," Norelli said in a statement.
News Source:
http://www.nashuatelegraph.com
