By: Javi Calderon
New Hampshire Considers New Type of Short Term Loan
Only weeks after the Republican-led state Congress overrode his veto of a bill that will now be bringing title loans back to New Hampshire, Governor John Lynch vetoed a similar bill that would essentially allow payday loans back into the state.
In 2008, Lynch – a Democrat – passed a law capping APR interest on short-term loans at 36%. The payday loan industry responded by closing 20 stores and all but leaving the state, as they have been forced to do in all 17 states that have instituted a 36% cap, because 36% APR simply does not provide them with enough revenue to operate.
While Lynch believes that these loans present a threat to the financial stability of middle and low-income families, an opinion piece in the Wall Street Journal claims that New Hampshire actually saw an increase in predatory lending complaints after the interest rate cap went into effect. The piece also points out that a study by the Federal Reserve in 2009 concluded that nearly all cash advance customers end up satisfied with their loans, and that Advance America, a publicly traded company, only received around 100 complains on over 10 million transactions in 2011.
The new bill, SB 160, would introduce a new lending product called the installment loan, which is repaid in several payments instead of all at once. If passed, the bill would also repeal the 36% APR limit that was passed in 2008.
The state Commerce and Consumer Affairs Committee overwhelmingly recommended that the bill be passed, concurring with the Republican opinion that banning these loans hinders the competitiveness of the financial marketplace and endangers borrowers by forcing them to turn to unregulated and non-local products to meet their needs.
With a Republican majority in Congress, Lynch faces an uphill battle to keep SB 160 off the books. After barely passing the car title loan bill by a vote of 180-171, the House was able to muster even more support to override Lynch’s veto by a vote of 248-123. SB 160 passed with a vote of 208-139, suggesting that overriding Lynch’s veto is more of an eventuality than just a possibility.
The debate in New Hampshire is a perfect example of why there is no simple solution to regulating payday loans. It is obvious that there is a need in the U.S. for short term loans and loans for people with poor credit. These products naturally will come with higher interest rates to compensate for the risk the lender is taking on. There is risk with any financial product, the mortgage mess is a perfect example, but no state is considering banning mortgage loans, are they?
The answer, as in most cases, lies in moderation. Finding the right mix of checks and regulations to protect consumers while allowing the payday lending industry to grow and serve the needs of the people.