By Susan Lupton, Center for Responsible Lending
In 2005, Scott Pelley interviewed a North Carolina woman on 60 Minutes named Sandra Harris, a Wilmington radio personality and teacher. Harris had gotten caught up in payday loans with annual interest rates around 400%, and had paid $10,000 in fees over two years for borrowing $2,500. She was evicted from her home and her car was repossessed. A payday lender was also interviewed on the show, and—revealingly—expressed gratitude that his own wife wasn’t in a financial situation that would lead her to take out a payday loan, adding that she wouldn’t do it anyway because “she has a master’s degree in accounting.”
A year later, North Carolina regulators forced out the last of the payday lenders by enforcing laws against their partnerships with out-of-state banks, and the practice essentially dried up. We now enjoy a 30% cap on consumer loans, which disrupts a payday lending business model based on compelling repeat borrowing of triple-digit interest loans that tap huge fees from working families until they are often financially ruined. Former payday borrowers in North Carolina and Arkansas, which had begun enforcing a 17% interest rate cap in their state constitution, expressed relief that the legal loan sharks were gone and shared the ways they now meet cash shortfalls that don’t expose them to the harms of payday lending.
But the practice is still legal in 35 states, and a political environment that is generating a tidal wave of deregulation threatens to open our state back up to these predatory lenders. One bill now being considered in Congress would make the partnerships between payday lenders and banks legal again, opening the floodgates to the predatory lending that was going on when Sandra Harris was caught in the trap.
If that bill becomes law, North Carolina will join the rest of the states in needing the protection of a new rule issued by the Consumer Financial Protection Bureau, which was finalized last fall after over 700 groups representing millions of Americans joined together to insist on strong reform of payday and car title lending. The rule requires payday lenders to assess the ability of borrowers to afford the loans before making loans in excess of six per year. Congress is now considering repealing that rule before it is even scheduled to take effect in August of 2019, which would keep working families across the country exposed to predatory payday and car title lending debt traps with triple-digit interest rates.
The practice is a travesty and its enabling by some lawmakers has been greased by significant contributions from an industry that drains $8 billion per year in fees nationally from those who have next to nothing to spare. As payday lenders give generously to politicians, countless families are levied repeat insufficient funds and overdraft fees as they struggle to meet the unaffordable terms of these loans. They often lose their bank accounts altogether, consigning them to the difficult lifestyles of “the unbanked.” They find it harder and harder to keep up with their bills, until some have no choice but to file bankruptcy. And, as if we haven’t seen enough indicators of gender inequity, 60% of payday borrowers are women.
The Institute for Women’s Policy Research just released the 2018 Status of Women in the States. While North Carolina women are faring better in some categories, we retain a grade of D+ under the heading of Poverty & Opportunity. Our national rank is 39 for “percent of Women Above Poverty.” And that rate is very high indeed, 32.5%, for a category of women who are especially vulnerable to predatory lenders, employed single mothers. After all, you need a paycheck to get a payday loan, though some lenders have no qualms about reaping in regular chunks of retirement or disability benefits. And for single mothers, unexpected expenses are going to make the promise of quick relief from a payday lender pretty enticing. Unfortunately, we know the quick relief is an illusion.
Sandra Harris told 60 Minutes, “All of it sounds like, you know, quick and easy, and that’s exactly what it was. But you know, nobody told you about the bad side. Because they wanted you to come back. That’s how they made their money.”
The average customer ends up with 10 of these triple-digit interest loans per year, finding themselves unable to escape a trap carefully set by lenders who have access to their bank accounts. When you think of that high poverty rate for working single moms, making them prime targets, you can see how this translates into real world woes – money that should be going for electric bills, medical prescriptions and peanut butter sandwiches is being instead funneled systematically to the pockets of payday lenders.
North Carolina women have been making gains in many areas, but the current enthusiasm for rolling back consumer protections is a serious, dire and large-scale threat. There is no equality without economic equality. Join our coalition to help fight to keep our protections in place.