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Lenders spent big to advance NC bill raising rates

Michael Biesecker and Mitch Weiss, Associated Press

RALEIGH, N.C. (AP) -- Records show a group of consumer finance providers spent more than $1.8 million to hire at least 20 lobbyists and steer campaign contributions to North Carolina lawmakers to win passage of a bill raising the maximum interest rates they can charge borrowers.

After sailing through the Republican-controlled General Assembly earlier this month, the bill now awaits the expected signature of Gov. Pat McCrory.

Critics of the measure, including Attorney General Roy Cooper, say the fee increases and sky-high interest rates allowed by the bill will trap vulnerable low-income borrowers in a harmful cycle of taking on more debt just to cover the payments on prior loans.

A review of public records by the Associated Press shows the owners of consumer finance firms, many located in small towns or clustered near military bases, spent heavily to overcome longstanding opposition to the bill boosting the industry's ability to make money.

Royce Everette, who owns 19 consumer finance offices in the state, helped coordinate the industry's lobbying effort. He said they had been trying to get the bill passed for about 15 years but got little traction before Republicans took control of the General Assembly in 2011. Records show Everette has personally made more than $74,000 in campaign donations.

"The Republicans are more free market," said Everette, who lives in Greenville. "They believe that people can make their own decisions."

A handful of Democrats also voted for the bill, which increases the cap on the unsecured loans to $15,000, up from $10,000. Interest rates for the loans will increase to 30-percent interest for the first $4,000 borrowed, 24 percent for the next $4,000 and 18 percent for the remainder of the principal. The bill also increases fees the lenders can charge.

Records show that since 2010 the industry used two political action committees and individual donations from company executives and their family members to send more than $300,000 to the campaigns of key politicians. The bulk of the money went to Republicans, including Gov. McCrory, House Speaker Thom Tillis and Senate leader Phil Berger.

Records show the top recipient was Tillis, whose campaign got more than $30,000 from the industry.

"All stakeholders were brought to the table and bipartisan support was earned in the House," Tillis said Thursday. "It's a compromise bill that reflects bipartisan support for free-market principles in North Carolina."

Federal tax returns show more than $1.5 million went to groups created to push the industry's agenda, including the Resident Lenders of North Carolina, the N.C. Credit and Personal Finance Council and the N.C. Financial Services Association. State records show much of that money went to hire at least 20 registered lobbyists, including former N.C. Republican Party chairman Tom Fetzer and Ex-Speaker Harold Brubaker, a Republican who recently resigned the legislative seat he held for 35 years.

That spending does not include campaign donations or lobbying costs during the current legislative session, which under state law isn't required to be disclosed until after the General Assembly adjourns in July.

Everette said their lobbyists played a critical role in presenting the industry's narrative to lawmakers — that the old regulations were cutting into profits and hindering their ability to compete with out-of-state companies offering similar loans over the Internet.

"It was our lobbyists that went and sat down and talked to them," Everette said of the lawmakers. "I think we're very fortunate. Through our efforts with lobbyists and talking with people about the industry, we have developed relationships with people on both sides of the aisle."

Everette said consumers will benefit under the new law because the industry will be able to boost profits, enabling them to lend more money.

The consumer finance firms have also taken great pains to differentiate themselves from payday lenders, which are outlawed in North Carolina. A separate bill to legalize those short-term, high-interest loans has languished in committee and appears unlikely to come up for a vote.

"We get customers that need $1,000 because they have to buy a new set of tires, or their car broke down and they don't have the money to fix it," Everette said. "We're not a payday lender. We're installment lenders. We're safe and reliable."

Cooper, the attorney general, disagreed, suggesting in a letter to lawmakers that the changes don't benefit anyone other than those making loans to financially desperate people. He cited state statistics showing 66 percent of consumer finance loans issued in 2011 were made to customers renewing existing accounts, a practice known as "loan flipping" where a borrower sinks deeper into debt to keep from defaulting on what he already owes.

And though the bill contains a provision barring installment loans to members of the military, Cooper made the point that the measure incudes no provision barring loans to the spouses of service members.

"Consumers don't need higher interest rates and more fees at a time when many families are still struggling to recover from a bad economy," said Cooper, a Democrat.


Follow Associated Press writer Michael Biesecker at twitter.com/mbieseck