Payday and title lenders would face a sharp crackdown under a bill passed by the New Hampshire House yesterday. Annual interest rates on the loans, which now can top 500 percent, would be capped at 36 percent under the proposed law. Payday lenders say the 36 percent rate would push the burgeoning industry out of the state and called it an "effective ban."
A similar bill has wide support in the Senate, with 14 out of 24 senators signed on as co-sponsors. Gov. John Lynch said yesterday that he thinks 500 percent annual interest rates "are unacceptable" but that he hoped to strike a balance that doesn't "ignore the need that's out there."
"I think we have to help people and protect people from going through a cycle of poverty where they're continuing to get more debt . . . because of refinancing these payday loans, which is what's been happening," Lynch said. "On the other hand, there is also a need."
Title lenders offer cash with the borrower's car used as collateral. Payday loans are small cash advances secured by showing a pay stub and sometimes relying on a postdated check as security. People ineligible for traditional loans are drawn to the lenders because they don't rely on credit checks.
Arguments about the bill, which cleared the House 207-124, pitted consumer choice against consumer protection. Advocates for preserving the loans argued that they are one option consumers should have and that, in some cases, the interest and penalties are less expensive than alternatives such as bouncing a check or racking up credit-card debt.
"New Hampshire consumers have the right to make their own credit choices," said Rep. Steve DeStefano, a Bow Democrat who advocated an amended version of the bill.
While payday loans are billed as short-term, small cash transactions that help tide people over to the next paycheck, critics say that the average borrower gets sucked into a cycle and takes out eight loans a year, according to industry statistics. "They pay the loan at 12:05 and at 12:08, they take out another one," said Banking Commissioner Peter Hildreth, who supported the bill.
New Hampshire and Rhode Island are the only states in New England where payday lending is not restricted. The industry has been on the rise in New Hampshire since 1999, when the Legislature removed a 24 percent cap on interest rates. There are about 50 payday loan storefronts across the state, and they made 149,000 loans in 2006.
Majority Leader Mary Jane Wallner, a Concord Democrat, said that the bill "eliminate triple-digit usury interest rates" and noted that the bill's backers include the attorney general's office.
"It's too easy for people to borrow and too hard for them to get out from under," said Rep. David Kidder, a New London Republican. He said that "easy borrowing" is what led to the nation's mortgage crisis and violates what he called "Republican ideals of thriftiness."
Not everyone agreed with him. Rep. Marshall Quandt said that on the 160,000 payday loans last year, only 12 complaints were filed. He said that constituents have a right to the payday loan option and are smart enough to know whom to call if they have a problem.
