Protect Consumers from Predators: Payday Lenders Need Tighter Controls
Article Printed in The Concord Monitor – 10/21/2005
Under the cover of opposing government regulation, business interests have successfully advanced an incremental legislative agenda over the last six years that has devastated legal protection for New Hampshire consumers.
This business offensive has gained ground under the radar, with minimal scrutiny from the media or the public. Outside of a handful of consumer advocates, the loss of legal rights has attracted little attention.
Three developments have been instrumental in the consumer defeat: the exemption of most businesses from the consumer protection law, the growth and legalization of payday lending and the repeal of the interest rate cap on small loans.
Probably the most important has been the exemption of businesses from the reach of the consumer protection statute. In 2003, the Legislature gutted the heart of the consumer statute by deciding that any business subject to a regulatory board like the banking or insurance department should be exempt. That removed entire industries from the law.
This meant that consumers lost their right to sue in state court over unfair and deceptive business practices. For example, if you are a victim of an unscrupulous used car dealer or a predatory home mortgage lender, you have no recourse under the consumer protection law.
Instead of the right to sue for damages, the Legislature offered consumers the right to complain to the banking department. This was a huge loss. The banking department lacks any public record of aggressively protecting consumers. What has this department done to publicize its consumer protection role? In fact, it identifies more with the industries it regulates than with consumers.
Also in 2003, the Legislature approved the predatory practice of payday lending. Payday lenders offer small short-term loans at exorbitant interest rates. There are now over 50 payday outlets in New Hampshire.
In a typical loan, the consumer writes a personal check drawn on his or her bank account for the amount borrowed plus a fee. The fee, stated as a percentage of the check or of the loan, translates into triple-digit annual interest fees. The lender agrees not to deposit the check until the consumer’s next payday. If the consumer cannot pay in full on the next payday, the lender will rewrite a new loan with more fees attached.
The Legislature actually allowed lenders to roll over a loan 11 times if the consumer continues to be unable to pay the balance owed.
Payday lending is a debt trap in the guise of a service. Consumers keep borrowing out of fear they will be prosecuted for writing bad checks. The fear of bouncing checks and defaulting is a powerful form of pressure.
Payday lenders are like loan sharks. Unlike responsible lenders, neither checks to see if a borrower will be able to repay the loan. It is enough that a prospective customer has a checking account and regular income.
There is a national struggle going on over this form of lending. Fourteen states prohibit payday loans through small-loan interest rate caps, usury laws or specific restrictions on check cashing. New Hampshire is the only state in New England that allows them.
In 1999, New Hampshire repealed its interest-rate cap on loans under $1,500. This paved the way for payday lending and a revival of usury. Usury is an old-fashioned word defined originally as charging a fee for the use of money. It came to mean the charging of unreasonably high interest rates.
In the early 20th century, states all over the country developed usury laws specifying the maximum legal interest rate at which loans could be made. Unfortunately, the national trend has been away from state usury laws. I would suggest that the rehabilitation of usury should not be considered progress.
Consumer protection has a long and honorable tradition in America. It is about fairness in the marketplace. It offers protection against fraud, harassment and economic victimization. I think back to the muckraking journalist Upton Sinclair and his novel The Jungle, an exposé of the lack of food safety and horrible working conditions in the Chicago meatpacking houses. More recently, in the 1960s, ’70s and ’80s, there is the example of Ralph Nader and Nader’s Raiders.
New Hampshire needs some local Ralph Naders. The mantra of small government has opened our state’s consumers to being fleeced by every variety of shyster and hustler.
On the positive side, Republican Rep. Elizabeth Hager has introduced a bill for the 2006 legislative session that will seek a study of the adequacy of current consumer protection law.
Before business interests remove any remaining consumer remedies, a bright light needs to be shined on the damage done. It is time for our sleepwalking around consumer protection to end.