July 19, 2008
Keene Sentinel
New law will drive payday-loan operations out of the Granite State, for better or worse
People across the Granite State stand to lose their jobs when a new law takes effect next year.
With Gov. John H. Lynch’s signature earlier this month, the law will limit the maximum rate lenders can charge for short-term loans in New Hampshire to 36 percent annually, down from an average of 521 percent.
The law “effectively prohibits the offering of cash advances in New Hampshire,” according to James S. Fulmer, director of public affairs for Advance America.
Advance America operates 24 stores in the Granite State, including one on West Street in Keene.
The cap would translate to almost $3 on a 30-day $100 loan, and $1.38 on a two-week $100 loan — or about 10 cents a day, according to The Associated Press.
“We can’t sustain a business model at (that) interest rate,” Fulmer said. “For us, that puts our employees out of work and forces us to close our centers.”
On the other side of the issue, placing strict controls over short-term cash advances helps everyday folks who are often already in financial straights avoid falling into a dangerous cycle, said Kelly Darling Snow, a case manager in the city’s Human Services Department.
Keene’s Human Services Department manages municipal welfare; it’s where city residents can turn for help paying for life’s necessities, including rent, food or heat.
“The people that need assistance (from our office) come in and say ‘I’ve used a payday loan and I’m in a cycle. I can’t stop.’ ” Darling Snow said. “They just keep borrowing. When they go in to pay, the money they use to pay back is money they don’t have again.”
Along with other case managers from city welfare offices across the state, Darling Snow testified before the Legislature in support of the bill.
While industry releases claim the average customer makes more than $40,000 yearly, Darling Snow said the people who come to her for help are in a very different situation.
“Most of the people I see are making less than $30,000 per year, and some as little as $536 a month,” she said.
One client secured a loan with her checking account number, and found her roughly $600 monthly Social Security check had been withdrawn to cover the debt, Darling Snow said. “Where is the integrity of a business like that?”
Critics of payday loans cite the average 521 percent annual rate on a two-week $100 loan, which translates to $20 for every $100 loaned.
According to Fulmer, a person would have to continually open a loan every two weeks for a year to pay that rate. The companies usually charge $20 or $30 for every $100 of loan, he said.
Jeff Kursman, a spokesman for Check & Go, which also has a location on West Street, said day by day, the companies are “being allowed to charge less for a two-week loan for $100 than it costs someone to get $100 from their own ATM, if banks are allowed to charge $2 fees.
“It’s something we as an industry have been saying all along. APR is not a fair comparison.”
Check N Go will be closing its New Hampshire locations, and some are already closed, Kursman said.
When the law goes into effect Jan. 1, Granite Staters won’t have to worry about paying their short-term loans back because, Fulmer said, most companies, including his own, will have to close.
“Our desire certainly would not be to close the centers but I’m aware of no option that would allow us to continue to operate,” he said. “Industry-wide, that’s going to put 200 people, plus, out of work.
“I find it disappointing that Governor Lynch would sign a bill that puts that many people out work with very little fanfare … The folks that work for us are good honest people.”
In sponsoring the law, Sen. Harold W. Janeway, D-Lempster, had not set out to put people out of work, he said.
He sees both sides of the argument — that the short-term loans can help some people and catch others in a vicious cycle, he said.
“They do provide a service and fill a niche, but they also are abused and are a trap for many people. I just felt the abuses and the downside significantly outweighed the convenience,” he said.
“The way the loans are set up, it’s designed really to capture people and once they’re in, it’s very hard to get out,” said Janeway.
Darling Snow agreed. Sometimes, people take out loans fully aware of the interest and consequences, she said. “Many people believe they will be able to pay it back, but the way the economy is, things happen: People get laid off, kids get sick, and when this does happen, it puts people way back.
“They go in the next week to pay the loan back, but that’s money they don’t have again. They need to borrow again.”
Instead of turning to short-term loans, she said, people should think about asking family or friends for loans.
“(The industry spokesmen) say ’What are people going to do that don’t have access to these anymore?’ But we lived a long time in this country without access to these payday loans.”
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Note: Perhaps it’s time for a change and to vote out both Janeway and Lynch.