CONCORD, N.H. -
New Hampshire's House has approved a 36 percent cap on payday loans, which will likely force payday loan companies out of the state if the Senate and governor agree.
New Hampshire and Rhode Island are the only New England states whose laws make payday loans profitable.
New Hampshire has no limit on payday interest rates. Rhode Island caps the finance charge at $15 per $100 two-week loan. That works out to a 391 percent annual interest rate.
New Hampshire's banking commissioner and payday lenders had told lawmakers that the companies would close if interest rates were capped. The plan approved on Wednesday caps the annual rate at 36 percent on payday advances and vehicle title loans.
Ken Compton, chief executive officer of Advance America, said the company would continue to work with lawmakers to craft reasonable regulations, but if a 36 percent interest cap is enacted, the company will close in New Hampshire.
The cap would translate into $2.96 in interest per $100 borrowed on a 30 day title loan and $1.38 per $100 - about 10 cents a day - on a $100 payday loan for 14 days.
Compton said $1.38 per $100 borrowed wouldn't be enough to cover staffing, rent, electricity and other basic business expenses.
Advance America charges consumers $20 per $100 in cash advanced, up to a maximum $500 loan in New Hampshire.
Critics complain that a $100, two-week loan plus the $20 charge works out to a 521 percent annual interest rate.
Cap supporters - including New Hampshire Legal Assistance and the state's welfare administrators - said consumers get caught in a "debt trap" when they can't repay the loans and must roll them over. They said consumers could instead turn to banks, credit unions, churches, friends and town welfare officers for help.
"It's not our responsibility what (payday loan companies) do," Greenland Democrat Michael Marsh said of their inability to make ends meet under a cap. Marsh said the companies' "real business is trapping the borrower."
Payday lenders offer quick cash advances for a fee, often secured by a postdated personal check from the borrower. Title lenders offer cash loans based on the value of the borrower's car. Customers are drawn to the lenders because, unlike banks, they don't run credit checks.
"Things happen," said Thomas Loll, D-Marlborough. "If you need a new battery, instead of groveling by going to mommy and daddy to ask for 100 bucks, these loans are out there."
Bow Democrat Stephen DeStefano said 92 percent of the loans are paid back. He said of the 160,000 loans issued by the lenders in New Hampshire last year, only six borrowers filed complaints.
Borrowers who don't repay title lenders lose their cars. Payday lenders may work out a longer payment plan to attempt to get their money back. Critics say some borrow increasing amounts, winding up deeper in debt.
"It's too easy for people to borrow and too hard for them to get out from under," said David Kidder, R-New London, who supported the cap.
The House voted 207-124 to send the bill to the Senate, which also is considering legislation to cap the rate. Sen. David Gottesman, who is sponsoring a similar bill, said he's very optimistic the Senate will approve the rate cap.
Gov. John Lynch said rates of 500-600 percent are unacceptable, but the state has to be sure people who need short-term loans have access to the cash.
The House voted down a compromise that caps fees paid by consumers at $15 per $100 borrowed. It also would have required a next day cooling off period between loans and a two-day cooling off after the fifth consecutive loan. Payday lenders would have had to offer an extended payment plan without additional fees if a customer couldn't repay the loan on time.
Compromise supporters won a small victory by preventing the House from killing the bill. Instead, the House postponed further action on that bill and a companion bill that had proposed imposing similar restrictions on title loans.
The title loan bill would have capped fees on the loans at $22 per $100 for 30 days. It also required a signed affidavit that the consumer could repay the loan. The lender would have had to include information on how the car would be repossessed for nonpayment. The bill also limited loan renewals and bans automatic renewals.
New Hampshire repealed an interest cap on small loans in 1999 after lenders complained to lawmakers that the credit card industry had moved into the market. Sen. Lou D'Allesandro, the repeal bill's sponsor, said the law was changed to ensure people who had problems getting credit could get a loan.
