Short-term loan debate comes back to House
CONCORD - Capping interest rates on short-term loans that use vehicles for collateral would end usury practices against some of the state's most vulnerable citizens, said supporters of a House bill Thursday.
House Bill 562 would cap annual interest on short-term auto title loans at 36 percent, reversing last year's law repealing the limit.
Social service advocates turned out in force Thursday to support the bill at a public hearing, saying loan companies take advantage of people in desperate situations and trap them in a cycle of debt.
However, industry representatives said the loans provide an alternative for people without good credit who cannot access bank loans, otherwise they will turn to Internet loans or "the street corner."
They said since the cap was lifted, the auto title loan companies have returned to the state, providing jobs and access to cash for individuals and business owners. If the cap is reenacted, jobs will be lost and there will be no alternative for people needing the short-term loans, they said.
"These loans trap people in a cycle of debt and eventually lead to taking a very important asset, a family car," said the prime sponsor of HB 562, House Commerce and Consumer Affairs Chairman Ed Butler, D-Harts Location.
He and others lamented that people enter into the loans without knowing the full consequences.
Last year, the Republican-controlled Legislature repealed the 36-percent cap on annual interest rates approved by the Democrat-controlled Legislature in 2009.
With the cap, many of the auto title loan companies left the state but returned last year after the House overrode Gov. John Lynch's veto. The repeal passed by one vote, cast by then-House Speaker William O'Brien, R-Mont Vernon.
Without a cap, interest rates on the short-term loans can be as high as 300 percent, but LoanMax lobbyist James Bianco, said the highest effective interest rate in New Hampshire would be 138 percent.
"LoanMax has made 3,200 loans since March of last year," he said, "and not one complaint with the banking department. These are not desperate people."
The company charges 24.99 percent per month for 30-day loans, LoanMax officials told the committee.
That is about 300 percent annually. The repossession rate is 4.8 percent in New Hampshire.
Consumer Protection Bureau head James Boffetti backed the bill, saying the auto title loans are "usury, it's predatory in nature and it's anti-consumer."
He said people can lose their cars, their savings and their jobs because "out of desperation they took out a loan at an enormous interest rate."
Several faith-based organizations in the Upper Valley supported the bill, saying churches have fought usury for many, many years.
"These modern-day loan sharks must be regulated," said Rod Wendt, president of the Upper Valley Interfaith Project. "If a 36-percent rate is too low, then they need to be told they are not welcome in New Hampshire."
Other members of the organization told of what they called vague and somewhat misleading information to entice people into the high-interest loans.
"I believe that these high interest rates are a form of usury - a method of money lending that takes advantage of those in urgent need and often least able to afford it," said Jane Hooper of West Lebanon.
Not everyone told of problem loans and high interest rates.
Rob Lospennato, a supervisor for Title Cash of New Hampshire's Rochester store, said he was first a customer of his business before becoming an employee.
He noted he used the company's services when he was about to get married so he could book his honeymoon and again several years later to make a down payment on a condo.
"I am very happy that this service was around as I don't have family to rely on and I don't have the best credit out there," he told the committee.
As a supervisor, he said he has contractors come in for loans to pay for supplies they need for a job and repay the loan once the job is complete.
"I know that there are some people out there that use these incorrectly, but when done responsibility, it is a great alternative to losing out on potential jobs," Lospennato said.
The committee did not make an immediate recommendation on the bill.