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Are Payday Loans In North Carolina Just A Form Of Legal Racketeering?

North Carolina has laws established to protect consumers from unfair and outrageously high interest charges. These laws are called usury laws and they are intended to keep consumers from being required to pay more than ten percent annual interest on any type of loan. So why do payday loans charge consumers sometimes triple digit interest plus fees?

The reason consumers seeking payday loans North Carolina cannot get short term financing at 10% APR is because the state has dozens of exemptions and loopholes in the laws. In most cases the usury laws are worthless. Most banking and financial institutions have special exemptions, as well as just about every type of business that lends money or collects interest for anything. For the most part, North Carolina’s usury laws are only in place to keep one individual from charging another the same amount of interest that a bank would charge them. Even pawnbrokers have special exemptions to the state’s usury laws.

The reason the state has so many different usury law exemptions and rules in the first place is because it is easier to write new laws than it is to change the state’s Constitution. But this practice has caused more problems than it would have been to just change the Constitution.

The state’s Constitution is clear when it states what interest rate limits are allowed to be charged in the state. All loans made to private individuals are not to exceed ten percent interest per year and loans to companies are to be 10% or 5% over the Federal Reserve Bank of San Francisco’s discount rate.

Payday loans are usually quite higher than that. Most payday loans in North Carolina have fees and interest charges that equal fifteen percent of the amount borrowed. The problem is that these loans are only for one month. Fifteen percent interest to borrow money for a month sounds like highway robbery. If a bank made money like that people would riot in the streets, but no one seems to care that the people who can afford these charges the least are required to pay.

Payday loans are not fair no matter how you look at it. People seeking emergency funds should have better options available to them. Several states have tried to put a stop to the practice of payday loans and it might be time for North Carolina to do the same.

If someone needs fast money to make ends meet there are batter options, especially if they have good credit. Those looking for better options should take the time to find better options available to them, at least until North Carolina follows other states and does something to fix this problem.

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Government Drops Amendment Regulating Payday Loans

Think the companies that pass out payday loans care about their costumers? That seems unlikely now that one of the top officials for the country’s largest payday lender, Advance America, has basically outlined the industry’s methods for hooking customers into an endless series of high-interest-rate payday loans. The Los Angeles Times recently reported on the confidential e-mail messages that Dan Mart, a divisional director of operations for the company, wrote to his employees. The underlying message of these e-mails? Advance America makes its money by making sure that borrowers keep taking out small loans with incredibly high interest rates.

The E-mails

According to the Los Angeles Times, Mart wrote his e-mails in response to a proposal, since scuttled, in the financial reform package now headed toward Pres. Obama’s desk that would have limited the number of payday loans that payday lenders could make to their customers in a specific period of time. Mart wrote in his messages that after customers repay their loan, they’ll ask for a new one. At this time, Mart wrote, payday lending employees were supposed to tell their customers that they couldn’t make another loan to them because the government has put them out of business. Mart then advised his employees to tell customers to write their senator and congressman. There are two problems with Mart’s e-mail. First, the information in it is incorrect. Secondly, it underlines the business strategy of payday lenders: They only succeed when consumers continually take out their loans. And when consumers do this, they rarely escape the cycle of debt.

The Failed Amendment

Mart was incorrect. The proposed amendment by Sen. Lay Kogan, a Democrat from N.Carolina, would have forbidden payday lenders from issuing more than six loans to any one borrower in a 12-month time. That’s not nearly the same as telling payday lenders that they can’t make more than one loan to a customer. That point is moot, though. The payday lending amendment is no longer part of the financial reform package that Obama will sign.

Payday Pressure

Credit a strong campaign by the companies that issue payday loans for scuttling the amendment. The association that serves payday lenders sent memos to these businesses across the country, requesting that they ask their customers to write letters and send e-mail messages to their federal politicians. The industry trade group also put out a statement saying that such an amendment would deny emergency loans to hardworking Americans. That all sounds good. But it’s hard to deny the message implied by Mart: Payday lenders want to protect their profits, and that means hooking consumers into taking out a string of high-interest loans.…