Payday Lenders Booted from North Carolina
Payday lending is
banned outright in a number of states, while many set an
interest rate cap. Despite these laws, payday lenders have
successfully operated in many of these states. They charge fees
that amount to over 400% APR for short-term loans. One might
ask, if the practice is illegal, then how are they doing it?
Payday lenders
partner with an out-of-state bank that actually provides the
loan. The payday lenders claim that they are merely
facilitating an interstate commerce transaction. This limits
them only by any usury laws present in the state where the bank
is based. Banks naturally migrate to Delaware and other states
that lack these consumer protections so that they fewer
limitations on their services.
This rent-a-charter
model has been attacked by the attorneys general of several
states and has drawn the attention of federal regulators. NC
Attorney General Roy Cooper argued that payday lenders were
breaking state law. In December 2005, NC Commissioner of Banks
Joseph Smith agreed that Advance America was in violation of
state usury laws. With the largest payday lender
effectively shut down in North Carolina, the 4 other major
operators also followed suit.
As promised by
Advance America, they appealed the decision. On May 24, 2006,
the state Banking Commission rejected this appeal. Other states,
including South Carolina, Tennessee and Pennsylvania are also
building support for the removal of payday lenders from their
states.
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