Editorials

The Center for Responsible Lending, a nonprofit organization that combats abusive financial practices, has a North Carolina mailing address for a reason. It was here that one of the most progressive predatory lending laws in the nation was passed in 1999.

Back then, the North Carolina Legislature, with the urging of the CRL and with crucial backing from the state's banking commission, capped the rate on payday loans at 36 percent per year.

Payday lenders continued to operate in North Carolina, skirting the law by using out-of-state companies, but a ruling by the Federal Deposit Insurance Corporation in 2006 stopped the practice.

"Since then," says the CRL's Leslie Parrish, "payday lenders have essentially left the state."

What impact has this had on the North Carolina economy and, more importantly, on low-wage earners who came to use the establishments?

Very little, is the conclusion of a study prepared for the state banking commissioners by the University of North Carolina's Center for Community Capital.

The authors found: "The absence of storefront payday lending has had no significant impact on the availability of credit for householders in North Carolina," and that "more than twice as many former payday borrowers reported that the absence of payday lending has had a positive rather than negative effect on their household."

Perhaps more to the point, legislatures in 12 states and the District of Columbia have essentially done the same as North Carolina. New Hampshire joined the ranks earlier this year. These states make up roughly one-quarter of the U.S. population. They include New York, Connecticut, Massachusetts and the economic powerhouses of the South, North Carolina and Georgia.

These economies and the people who operate within them are doing relatively well without the "assistance" of payday lenders.

Steven Graves, a professor at California State University, Northridge, who has studied payday lenders, also makes this point: "You don't see enormous numbers of payday lenders across the state line in New Hampshire or in South Carolina" or any of the other states that border states where the practice has been outlawed, he says. "You see places that sell alcohol, cigarettes, strip joints, but not payday lenders.

"It just shows you, people can do without it."

Predatory lending

How state government turned Alabama into ground zero for modern-day loan sharks.

June 23 — In devout Alabama, "usury" loses its meaning
June 24 — Lending terms once outlawed now legal
June 25 — A woman on a fixed income and in a fix to lenders
June 26 — A lender's defense: "Gregory had a need and I filled it"
June 27 — Anniston contends with a wealth of short-term lenders
June 28 — North Carolina's statehouse offers a possible fix
June 29 — Local solutions for a local problem
June 29 — Short-term loans can lead to financial freedom
June 29 — In hard times, are payday loans a necessary evil?
July 3 — Payday loans: They're not usury