MEDIA RELEASE: Don't change the law to make loans even more predatory, consumer advocates say
If the ban on certain consumer loan fees is lifted, it could cost North Carolina's working families millions of dollars every year
RALEIGH (April 26, 2010) -- Backed by lobbyists from the high-cost consumer loan industry, lawmakers are proposing new fees on consumer finance loans that would extract millions of dollars from North Carolina's working families.
The bill would remove a longstanding prohibition on late fees, which have never been allowed on finance company loans. When lawmakers passed the Consumer Finance Act in the 1960s, it was acknowledged that high interest rates, which often reach or exceed 30 percent, would already compensate the lenders for late payments and defaults of risky borrowers.
"We think this is a bad idea even in good times," said Chris Kukla with the Center for Responsible Lending. "When we consider the current struggle for families with high-cost debt, it is a terrible idea."
Consumer advocates organized a Monday news conference opposing these changes. The new bill to permit additional fees on high-cost consumer finance loans will be introduced on Tuesday at the Joint Legislative Study Commission on the Modernization of North Carolina Banking Laws and the Consumer Finance Act meeting.
In 2008, despite the worst economic climate in a generation, more than 70 percent of consumer finance companies were profitable, according to the NC Commissioner of Banks. The majority of loans made in North Carolina come from subsidiaries of big out-of-state lenders Citi and AIG.
"With the majority of finance companies making a profit - and the majority of working families struggling under the worst economy since the Great Depression - adding a new fee to loans whose annual percentage rates can already reach 54 percent would further prey on North Carolina's consumers," said Alfred Ripley, head of the NC Justice Center's Consumer Action Network.
Financial institutions issued more than 425,000 such loans in 2008. Experts conservatively estimate that, if the new fees are allowed, it would cost consumers millions per year in additional fees.
FOR MORE INFORMATION, CONTACT: Alfred Ripley, NC Justice Center, 919.274.8245; Chris Kukla, Center for Responsible Lending, 919.308.0770; Jeff Shaw, Director of Communications, NC Justice Center, 503.551.3615.