RALEIGH — A dozen years after North Carolina became the first state to outlaw short-term, high-cost payday lending, legislators and lobbyists are pushing for the industry's return, promising protections to prevent borrowers from sinking into a cycle of debt.
The industry was outlawed in 2001 after a four-year experiment, but it wasn't until 2006 that the last payday lenders finally shut down. North Carolina lawmakers of both parties have periodically pushed to bring payday lending back to the state.
The industry this year has pumped up its efforts, hiring 10 lobbyists including former state House Speaker Harold Brubaker, R-Randolph, and former state Republican Party Chairman Tom Fetzer.
Republican Gov. Pat McCrory hasn't taken a position on payday lending. He came into office this year promising to treat businesses as state government's customer, hoping that will create an environment for companies to grow, a sentiment largely shared by the GOP-led General Assembly.
Payday loans are small, short-term loans with fees that — when described on an annual basis, as most loans are — can amount to several hundred percent. The new North Carolina legislation would allow lenders to charge up to 15 percent in fees for loans of up to $500, for a maximum of $75. The industry's supporters say the higher costs to borrowers are justified because payday loans are risky.
Supporters also say payday loans offer a reasonable, government-regulated option for people desperately in need of cash with nowhere else to turn. Consumer advocates say the loans and fees can trap consumers in debt as new loans are borrowed to replace old ones.
The average customer of leading payday lender Advance America takes eight such loans in a year, according to the Spartanburg, S.C., company's annual report.
North Carolina's banking commissioner reported in 2001 that one in seven borrowers turned to a payday lender at least 19 times a year, or nearly every two weeks. At that frequency, the borrowers paid back at least three times more in fees over a year than the amount they borrowed.
Lisa Engelkins, 42, of Winston-Salem has seen both pros and cons of payday loans. She said she was a single mother in her 20s, struggling to collect child support, when the major bank she worked for turned her down for an unsecured personal loan.
"There wasn't quite enough to get me to the next payday," Engelkins said.
She said she borrowed $255 from a payday lender in 1998. But the fees added up, and her earning power lagged. As one loan rolled into another, she wound up paying more than $1,200 in fees over the next three years, Engelkins said. She said she paid off the loan two years later.
Now Engelkins is a credit counselor trying to help struggling families with foreclosure and credit card debt and says she could see herself alongside some of her clients, returning to a payday lender.
"There's always going to be something that comes up. There's going to be an emergency," Engelkins said. "If I had a dire emergency, and I have no other method, then I would probably do the same thing if I had to."
Consumer advocates note that some North Carolina banks and all credit unions offer unsecured personal loans for less. North Carolina's largest credit union, the State Employees Credit Union, charges customers 12 percent for a salary advance loan.
About 9 percent of North Carolina households have no bank accounts and operate mostly in cash .
Advance America senior vice president Jamie Fulmer said consumers should have the choice of a payday loan when the gas bill is due, rather than face late fees, overdraft charges or utility reconnection costs.
"The payday loan is not unlike other credit products out there," Fulmer said. "There are inherent risks. Customers must be careful. They must carefully consider all their choices, and then they must make the decision that's best for them."
Bill sponsors Sens. Jerry Tillman, R-Randolph; Clark Jenkins, D-Edgecombe; and Sen. Tom Apodaca, R-Henderson, said they think the little guy should choose where to borrow when in need.
"We have cut out those folks that do not have a credit card or access to any money, and believe me they are getting the money elsewhere" like online lenders, Apodaca said. "So if we're going to have it, we might as well regulate it."
The sponsors promise a law legalizing payday loans that prevents the abuses of the past and keeps out financial predators.
But opponents, including Attorney General Roy Cooper, don't believe it. Retired Navy Adm. Steve Abbot, president of the Navy-Marine Corps Relief Society, said in a letter to lawmakers last week that high-cost loans harm military readiness and add to financial stresses that can undermine a security clearance.
Apodaca, who has long supported resuming payday lending, responded: "I can say the admiral has never had to borrow $500 and not had access to it."