No time would be a good time to let unscrupulous payday lenders start preying on North Carolina residents again. But now — as the COVID-19 pandemic has disrupted jobs and lives — letting payday lenders take advantage of those down on their luck could be devastating.
We’ve fought this battle before. Legislators banned the practice here back in 2001. But lenders, who are crafty and resourceful, have kept finding ways to creep back in. They would find loopholes. Out-of-state lenders lured borrowers with online loans. Lenders offered loans secured by the borrower’s car title. They set up shop on Native American reservations. They partnered with out-of-state banks to get around North Carolina law.
One way or another, they’d pop up again, like villains in some arcade game.
Finally, in 2006, the state’s banking commissioner ruled that the largest payday lender operating in the state, one using the out-of-state-bank ruse, was here illegally. That shut the door — for a while.
But now, the payday loan industry, after years of successful deep-pocket lobbying in Washington, has a powerful new ally: the Trump administration and its war on consumer-protection regulations.
The threat of payday lending is back in force, and the timing could hardly be worse. The pandemic has thrown a lot of people out of work, and most of the emergency help that kept them going is running dry.
Predatory lenders and the politicians who enable them argue that the loans are simply helping people who need quick cash in an emergency. Unfortunately, their brand of “help” often drags people down so that “emergency” becomes a way of life.
The idea is that the borrowers need a small loan to tide them over until the next paycheck. The catch is that the interest rates are extremely high. Too often, something happens before the next paycheck, and the borrower can’t pay the loan back. So the lender rolls it over, tacking on more interest. Interest rates soar as high as 400%. A loan of a few hundred dollars can balloon into a debt of thousands and take takes years to repay, if ever.
Things get worse. The borrower loses his car, then his job, maybe even his home. Any chance of getting out of debt and making a better life is gone.
The lenders target the most vulnerable people, preying on people of color and low-income residents of depressed areas with limited banking. True, people who turn to payday loans don’t have many options, but the answer is not to give them an option than leads to financial ruin.
Over the years, payday lenders have preyed heavily on troops at North Carolina’s military bases, especially young enlisted troops with little experience and struggling veterans.
The Obama administration worked to rein in payday lenders on the federal level, with the Consumer Financial Protection Bureau devising tough new rules.
The Trump administration lost little time in reversing them. It killed rules that were supposed to make payday lenders verify that borrowers could reasonably pay back loans. It blocked efforts to limit lenders’ attempts to pull money out of borrowers’ bank accounts. It refused to limit the number of times a loan could be rolled over.
Now a new federal rule proposed by the Office of the Comptroller of the Currency in the Treasury Department would allow predatory lenders to partner with out-of-state banks to get around the state’s interest-rate cap. The federal rule could outweigh the state law, undoing North Carolina’s progress in banning predatory payday loans.
Officials here say they oppose this latest rule change that could open the door for payday lenders to return. They should spare no effort in fighting it.
North Carolina wisely has worked hard to block payday lenders. We’ve made a lot of progress and helped a lot of people. A reversal now would be a costly mistake.
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