New Hampshire is poised to cap payday lending, a move the industry says will put it out of business in the state.
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The House voted Wednesday to send a bill to Gov. John Lynch that sets a 36 percent interest rate cap on all small loans. It is aimed primarily at loans backed by an anticipated paycheck or by car titles. Lynch has said he'll sign it. The cap would take effect Jan. 1.
Supporters said they wanted to prevent people from being victimized by extremely high interest rates.
Opponents, including Advance America, Cash Advance Centers Inc. which writes payday loans around the country, said the cap will put the industry out of business in New Hampshire. It operates 24 stores, with 50 employees, in the state.
Reacting to the vote, the company said the legislation will cause problems for those who borrow the money and those who lend it.
"It will eliminate a sensible financial choice, thousands who take out a state regulated payday loan each year will be left without a viable alternative and hundreds of employees will be put out of work," said the company's director of public affairs, Jamie Fulmer.
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 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. Advance America has 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.
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.
Borrowers who don't repay title loans lose their cars. Payday lenders may work out a longer payment plan to attempt to get their money back. Critics say some people borrow increasing amounts, winding up deeper in debt.
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.
