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NC House tentatively approves loan rate increases

Chris Kardish, Associated Press

RALEIGH, N.C. (AP) -- The North Carolina House tentatively passed a bill Tuesday raising borrowing limits and interest rates on installment loans.

The bill, which already passed the Senate, increases the maximum loan amount to $15,000 from $10,000, allows consumers to defer payments at a cost of 1.5 percent and charges $15 late-payment fees. An amendment added by a House committee with the backing of the bill's Senate sponsor softened interest rate increases. Those changes were enough to get two watchdog groups to drop opposition in favor of a neutral position, but other consumer advocates maintain the bill will intensify the cycle of debt in which low-income borrowers find themselves.

Installment loans are often pursued by people with poor or nonexistent credit history who can't obtain credit cards or secured loans. Unlike credit cards, installment loans come with set terms, which the bill lengthens. Riskier payday loans remain illegal in North Carolina.

Short-term loans have been viewed with skepticism by military leaders in the past, but they're remaining neutral after bill sponsors wrote notifications for commanding officers into the bill. Many installment lenders cluster around large military bases.

Interest rates for loans of up to $10,000 currently stand at 30 percent for the first $1,000 and 18 percent for the remainder of what's owed. The bill charges 30 percent interest for the first $4,000, 24 percent for the next $4,000 and 18 percent for the remainder. Those rates previously stood at 30 percent for the first $5,000, 24 percent for the next $5,000 and the remaining principal.

Rep. Susan Fisher, D-Buncombe, said winning the neutrality of the North Carolina Justice Center and the Center for Responsible Lending is a far cry from approval. She noted that the state's attorney general and other groups still oppose the bill because installment loans are loaded with costly insurance products and lenders are encouraged to push consumers to continually renew the loans rather than pay them off.

"There is so much wrong with these kinds of loan products that take advantage of the poor, the elderly and families that are already struggling," she said.

Supporters countered that the industry hasn't seen a rate increase in 30 years, and credit has been especially hard to come by since the Great Recession. Rep. John Szoka, R-Cumberland, said it isn't the business of the General Assembly to "legislate the outcomes of people's decisions."

"This is an avenue for people, generally speaking with lower credit scores, that gives them access to capital," he said.

The bill passed 74-42 but will need another vote after Fischer objected to a final reading. The bill will have to return to the Senate for approval of the interest changes.