A few states have passed legislation capping the annual interest rates on payday loans so low that lenders are forced to close their stores and consumers are left with fewer credit options. While critics argue that payday loans can be offered under these annual rate caps, they also admit that these low APRs ban the product. In fact, Uriah King, with the Center for Responsible Lending (CRL), has acknowledged lenders often close their doors when a 36% annual rate cap is adopted and admits that, “driving the practice of payday lending out of the state—not simply reigning in interest rates” is CRL’s goal .

The real-world examples are proof of the consequences of overly restrictive annual rate caps. Hundreds of stores have closed, thousands of employees have lost their jobs and hundreds of thousands of consumers are left to choose among less desirable credit options.

Read more about annual rate caps in Oregon, Ohio, New Hampshire and D.C.

Laconia’s NH Citizen reports:

One fee that will rise at Laconia Savings Bank is the overdraft fee, which is going from $26 to $30.  “It’s not a huge amount, but one of the benefits we hope to is see is that, with a higher fee, people will be less likely to overdraw on their accounts,” Murphy said.

So, consumers in New Hampshire no longer have the option of a $15 per $100 payday loan…but they’ll be forced to pay $30 if they overdraw their account.  Insanity.

Great editorial on the new 36% APR rate cap from New Hampshire’s Union Leader…

Starting today, hundreds of payday lenders’ employees face layoffs and thousands of their would-be customers will rack up late fees and bounced-check fees because legislators and the governor don’t approve of the type of loan they would have taken out to avoid those costs. By legislative and Lynch logic, it is better to pay a $30 bounced-check fee than $20 in interest on a $100 loan.

Payday loans often amount to a bad deal. But in some cases they make sense. Shutting down payday lenders was a disservice. The law ought to be repealed at the first opportunity.

As this article descibes, rate cap legislation signed by Governor Lynch recently will drive payday lenders out of the state:

The first bill (HB 267) at issue caps such loans at an annual interest rate of 36 percent.

Typically these loans are taken out for a few weeks and the compounded, annual rate of borrowing can run as high as 500 percent.

The cap means title and payday loan companies could charge no more than $1.38 on a $100 loan taken out for two weeks.

The second bill creates an 18-person commission to examine options for short-term financing and report back to lawmakers by Nov. 14, or a week after Election Day.

The philosophy of the New Hampshire State Legislature is to ban first and then study.  

Commentary on recent legislation in New Hampshire that, among other things, bans payday lending:

The bad news is if you smoke cigarettes, drink wine, buy property, run a poker tournament or need a short-term loan, you could wind up paying more.

…Lynch will soon sign a law capping the interest rate that can be charged by payday loan agencies or title loan agencies to short-term borrowers. The cap would be 36 percent after Jan. 1.

Payday operators say they can’t survive on the restriction and will close shop in the state. They predict borrowers will end up paying more, if they’re even able to get such quick loans from credit unions or other lenders.

Sunday’s editorial in the New Hampshire Union Leader asks, “What, if anything, is the governor going to do for the 200 private-sector workers he personally will make jobless at the start of next year?”

A few excerpts:

The New Hampshire house and senate have concurred. The effective date on the payday lending ban will remain January 1, 2009.

Just a few comments on this Associated Press story about a new “payday loan alternative” in New Hampshire.

The article fails to mention a few key points:

1- St. Mary’s Bank is  a credit union, not a bank

2- The MyPay product is offered in two loan amounts: $250 and $500.  There is an 18% APR, along with a $15 fee for the $250 loan and a $25 fee for a $500 loan. 

So, yes, it is a bit cheaper than a traditional payday loan, but keep in mind that credit unions are exempt from federal and state income taxes due to their status as not-for-profit financial institutions. They do not have to pursue a profit. And the majority of Americans do not have access to a credit union, as their membership is restricted to defined segments of the population.

We welcome St. Mary’s Bank into the payday lending market and believe competition is good for our customers. But while credit unions can provide another choice for consumers, they cannot be considered a replacement for payday lenders in New Hampshire.

In New Hampshire’s 2006 election, Democrats were handed control of all branches of state government–for the first time since 1874.

Andrew Cline, editorial page editor of the New Hampshire Union Leader, writes about the consequenses of Democratic control in a column for National Review.

Now they are paying the price — literally. The orgy of taxing, spending, and regulating in which Democrats have indulged is threatening New Hampshire’s status as the New England state most hospitable to business and individual liberty.

Specifically about legislation to ban payday lending in New  Hampshire:

Democratic legislators’ attempts to kill another industry were more successful: They passed a bill that will effectively kick payday lenders out of the state next year. The payday-lending industry had boomed in New Hampshire in the past few years, and not a single complaint had been lodged with the banking commission against any payday lender. Nonetheless, Concord decided it had to “protect” the citizenry, and placed a 36 percent cap on the interest rates charged on short-term loans. When that cap takes effect, a payday lender will be able to charge no more than $1.38 on a typical two-week loan of $100, instead of the $20 now charged. Some lenders have said they will continue to operate until the law goes into effect. After that, with their profits legislated away, they will leave the state.

Thanks to Dave for sending the following to Payday Pundit…

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New Hampshire is on the verge of banning payday loans. I own a payday loan office in Manchester, NH. The following is a letter one of my employees wrote to address this injustice.

Guest Shot: Appalled at Legislatures effort on payday lending

February 22, 2008 6:00 AM

I am a payday loan officer in Manchester. I have been very active with the current bill (HB 267) that has gone through both the House and the Senate.

This bill will eliminate payday loans in the state of New Hampshire by imposing a 36 percent APR cap. Thirty-six percent would mean for every $100 loan, we would make $1.36, this is not enough to pay normal maintenance for a company. I am appalled at the behavior of both the senators and House members in regard to these bills. It is my belief that instead of working in the interest of their constituents, they are working in the interest of the banks.

…In the past four years, the welfare department of New Hampshire has seen a drop in the number of people requesting assistance. Oddly enough these numbers coincide with when payday loans first started to emerge in the state. Instead of New Hampshire residents asking for government assistance, they are trying to make ends meet on their own.

…At the New Hampshire Senate hearing which was held on Feb. 14, Sen. Bargdon of Milford, admitted to having a limited knowledge of how payday loans work. Instead of voting with a lack of knowledge about the subject, he actually visited a payday loan office. He spoke to customers and loan officers. After getting an idea of what it is we do, he voted against HB 267 to eliminate payday loans, deeming payday loans to be a valuable service. Perhaps the vote would have gone differently had more senators took the initiative to visit or even call a payday loan office.

…HB 267 has left a number of people without an option and currently it appears that the only ones benefiting from its passage are the banks. The banks who will be making $30-$40 per overdraft fee. As stated earlier, these fees equated more than $30 million in one state, and that was within one year. It now seems as though the senators have lost the interest of the people and replaced it with an interest for the banking institutions. My concern is no longer for myself and the 200 other employees out of a job in the state of New Hampshire. My concern is where are our customers supposed to go?

Well said Ms. Simms.