Military “protections” demonstrate stunning hypocrisy of predatory loan bill

Predatory loansMembers of the Senate Commerce Committee approved a bill today that would jack up interest rates on small loans made in North Carolina to unprecedented levels. The bottom line on the bill: Already high-cost loans will become bigger, more expensive and harder to pay off. 

The action came on a voice vote after several experts explained why the bill would be a disaster for already struggling consumers.

I know: No big surprise for the 2013 North Carolina General Assembly — a group whose motto ought to be “When corporate lobbyists say ‘jump,’ we say ‘how high?'”

Still, this morning’s hearing featured a moment of such blatant and downright stunning hypocrisy, it had to be witnessed to be believed.

Consider the following: Under the terms of the latest version of the bill trotted out this morning, several extra consumer protections will be added for military personnel on active duty — including an extended right to cancel the loan, a prohibition on mandatory arbitration clauses, and additional disclosure requirements. The lender even has to mail a copy of the loan to the borrower’s commanding officer!

The point of all this: To prevent soldiers, sailors, airmen and marines from getting ripped off, obviously. Even loan industry lobbyists — the people who drafted the bill — admit that, without these protections, vulnerable members of the military will be subject to exploitation.

But, of course, therein lies the rub: If vulnerable members of the military need protection, why not everyone else? Why not military veterans? Why not first responders? Why not teachers? Why not anyone desperate enough to pay 30% interest on a $1,000 loan in this era of historically low interest rates?

The answer, of course, is that lawmakers don’t give a damn about those other people. And truth be told, they don’t give a damn about members of the military either; they just wanted to make sure they could flip military officials from opposing the bill to “neutral” just like the industry “flips” two out of three borrowers into back-to-back-to-back loans.

In short, it was a sobering reminder of: a)  just how far our elected officials have sunk into the mire of cyncism and hypocrisy this session, and b) the fact that, as bad as things have gotten, there’s still lots of room for them to get even worse as long as legislators remain in town.   




  1. Doug

    April 30, 2013 at 2:02 pm

    Not that I agree with these loan sharks, but they do have to be compensated for the risks they take. Until you know their loss rate on loans you cannot know if it is predatory or not. If you are loaning to someone who you have a 30% chance of losing your money then would you only want to be charging 10-15%? That said, it is too bad there is a market for this kind of thing.

    I also think there are some federal laws that come into effect with these lenders as well. I seem to have read something on that a few years ago, so it may not just be the GA, it could be the current regime in DC trying to protect the military. I will have to see if I can find that article.

  2. Bobby Jones

    April 30, 2013 at 2:05 pm

    Was our senator, Ralph Hise, involved in this? Am I to understand that this has been approved in committee, to be considered by the full senate? Thanks for any feedback this generates.

  3. Doug

    April 30, 2013 at 2:06 pm

    2007 Federal Act on payday lending for military. Not exactly new news that there were already restrictions on payday lending which is the most prevalent form. The NC GA likely has to include/exclude military as follows this law.


  4. Rob Schofield

    April 30, 2013 at 2:12 pm

    The current rates on these loans were set back when the prime rate — the cost of money to this industry — was through the roof. Despite interest rates falling over time to all-time lows, the industry has NEVER reduced rates, Now they want even higher rates for one reason — i.e. they can get them.

    Meanwhile, a 2011 NC Commissioner of Banks study found that the industry was profitable in North Carolina and had actually bounced back from the Great Recession much faster than other parts of the lending industry. Indedd, the industry has been growing in recent years — thus providing evidence that it’s doing just fine.

  5. Rob Schofield

    April 30, 2013 at 2:12 pm

    And yes, Hise is a sponsor.

  6. Doug

    April 30, 2013 at 3:41 pm

    A few banks dabble in this product, but with the overall scrutiny of the Federal Reserve it is far from a true profitable business line for them. I know 5/3 and Regions do some, but not as many as you think. The prime movers are not what you would consider a “bank”. And yes, whomever is taking the risk should be allowed to charge high rates for the risk they are taking, otherwise even this avenue would dry up for someone who needed the product. In fact, the regulators are pushing for stronger underwriting standards, which means either fewer loans or higher rates.

  7. Frances Jenkins

    April 30, 2013 at 5:56 pm

    Here is the real deal Bev Perdue is going to Prison over Dix. I bet You a million.

  8. Frances Jenkins

    April 30, 2013 at 8:46 pm

    Can Bobby Jones not do his own research? Shocking!!

  9. gregflynn

    May 1, 2013 at 9:04 am

    The NC Commissioner of Bank has regulatory responsibility for banks, mortgage companies and other financial areas including consumer finance, check cashers, money transmitters, and refund anticipation loan facilitators. Here is a link to the 2011 report The Consumer Finance Act: Report and Recommendations to the 2011 General Assembly

    Payday lending is currently banned in NC. Payday lending was allowed in NC between 1997 and 2001 and out-of-state based store shut down in 2006. According to the report 7% of North Carolinians used these loans with a median amount of $244 and APR of 419%.

    The Military Lending Act only covers payday lending, car loans and tax refund anticipation loans. It doesn’t cover the various other short term loan products which may have nominal interest rates of 30% but actual rates of 300-500% when all of the fee packing, penalties, loan re-packing and skimming is done. The consumer loan industry, dominated by six out-of-state lenders which control 70% of the market, has a history of doing end runs around existing protections, as evidenced by the fact that it took 5 years to shut them down after the law banned payday loans.

    Even mainstream banks turn a blind eye to predatory lending when they earn enormous overdraft fees for multiple automatic debits of lean accounts. The additional military protectionss were necessary because the MLA did not cover the proposed transactions.

    For the record, the most common form of predatory lending practices involve mortgage finance.

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