Who asked for this?

by Rob Schofield, NC Policy Watch, April 14, 2015.

Lawmakers disregard public opinion and the common good with anti-consumer bills

The process of crafting new laws in a state legislature can be a mysterious and confusing process a lot of the time—especially to average citizens who don’t have the time or capacity to follow along closely. Even for activists, it can often be difficult to keep up with the various players—much less their arguments and true motivations.

Fortunately, when it comes to one area of frequent legislative activity, even the least well-informed citizen can pick right up on what’s really going on in a New York minute. The subject is consumer lending and the rights of borrowers and debtors.

Every year at the General Assembly—under both Democratic and Republican leadership—some group of lawmakers introduces legislation to make it easier for lenders and creditors to extract greater amounts of money from vulnerable consumers. The bills come in various shapes and sizes and with different labels, but the end result is always the same: if the proposals pass, people without much will pay higher prices to borrow money and/or forfeit some of their rights when it comes to how the lenders can collect and come after them later. The companies involved will, in turn, make a lot more money. It really is as simple and painfully grim as that.

Raising rates on loans, raiding consumer bank accounts

As was explained last week on The Progressive Pulse, this year’s legislature is no different. Indeed, with hundreds of bills still to be filed by today’s House introduction deadline, lawmakers have already unveiled two new proposals to: a) jack up the already usurious rates on small loans and b) allow creditors (including those very same high cost lenders) to raid consumer bank accounts in order to collect debts—even if to do so would force the consumer to lose his or her home or file bankruptcy.

As Raleigh’s News & Observer explained the other day, the new and predatory proposal from the high-interest finance companies (i.e. the friendly folks that got the legislature to raise rates on small consumer loans a couple of years back) would send effective interest rates on these loans into the stratosphere:

“Under current law, the interest rate on loans of up to $1,500 are capped at 30 percent.

The new bill avoids any mention of interest rates, instead stipulating that the ‘installment handling fee’ that consumers can be assessed monthly is capped at $5 per $100 of the loan amount up to $500. For loans above $500, the rate is $4 per $100 above the loan amount.

On a $500 loan, the monthly fee would be $25 per month, or $300 per year. That translates to an interest rate of 60 percent, double the current maximum rate, [consumer advocate Ellen] Harnick said.”

Meanwhile, the other rather remarkable and momentous proposal would introduce wage garnishment into North Carolina for the very first time in modern history for general debts like small loans and credit card bills.

As veteran Raleigh bankruptcy lawyer William Brewer explained last week, this proposal would end a nearly 150 year-old rule in the Tar Heel state that general creditors cannot seize money from people that is necessary to support their families. It would also unleash a bevy of predatory national profiteers that buy up old consumer debt for pennies on the dollar and, perhaps most disturbingly, spark a wave of bankruptcies. Here’s Brewer on the garnishment proposal by Senator Andrew Brock:

“As practical matter, the only refuge for such an unfortunate wage earner will be to file bankruptcy. But here’s the rest of the story: North Carolina has one of the lowest bankruptcy filing rates in the nation. For the first quarter of 2014, the national average for bankruptcies was 3.23 for every 1,000 people. North Carolina ranked 40th among the states with a rate of 1.82.

By contrast, the rates in our sister states in the southeast that allow with wage garnishment along the lines of Senator Brock’s proposal are the highest in the nation. Tennessee is first with a rate that’s 350% of North Carolina’s. Georgia and Alabama are second and third with three times the North Carolina rate. Virginia has a rate 70% higher than North Carolina. South Carolina, which has no wage garnishment, has a filing rate 13% lower.

The conclusion from all this is inescapable: if the General Assembly and Gov. McCrory enact a law that dramatically expands wage garnishment in our state, bankruptcy filings will soar by 200-300%.”

Making sense of such proposals

So, who in the heck asked for this? It can’t be that state lawmakers are arriving at work with the thought: “How can I make life tougher on the vulnerable consumers in my district today?”

Moreover, unlike many other areas in which conservative politicians sometimes skillfully convince people of modest means to support positions contrary to their own economic interests, no one is fooled on this one. Public opinion poll after public opinion poll finds strong voter opposition to such proposals.

Indeed, a new poll conducted by Public Opinion Strategies and released last week by the Center for Responsible Lending found that North Carolina voters overwhelmingly disapprove of predatory lending and the bill to raise rates that is described above. Here are the key findings:

• 93% of voters oppose legislation that would allow finance companies to charge over 60% APR on high-interest installment loans.
• 84% of voters say they would be less likely to support a candidate who voted in favor of a rate increase. There is little difference among self-identified party supporters with 79% of Republicans, 85% of Independents and 87% of Democrats saying they are less likely to support a candidate who supports the Senate bill.
• Among voters who attend church regularly, 65% believe an interest rate over 60% APR violates the Bible’s prohibition against usury.
• 83% of voters oppose legalizing payday lending in North Carolina. 87% oppose legalizing car-title lending.

And lest you simply conclude that Public Opinion Strategies is somehow cooking the numbers, it’s worth noting that it is a widely respected firm whose past North Carolina-based clients include Bank of America, Duke University, Senators Richard Burr and Thom Tillis and several North Carolina members of U.S. House of Representatives.

In other words…

The only explanation for this sad situation is pretty obvious. Since hardly any average consumer with even a shred of common sense would ever ask his or her elected representative to vote for something of this kind, much less sponsor it, it’s clear where the proposals come from and what motivates the lawmakers to act. Simply put, lobbyists representing clients with fat wallets and, shall we say, a strong interest in who serves in public office, go to lawmakers and convince them to do it.

Oh sure, there may be the odd market fundamentalist legislator who so fervently believes in the idea of totally unfettered, “let the buyer beware” capitalism (and cares so little about his or her own political future) that he or she opposes any consumer protection laws when it comes to lending or debt collection. But that’s not what’s going on here.

In this case, the lawmakers in question are taking the chance that the benefits of doing the bidding of some powerful industries will outweigh public opinion and the obvious fact that the last thing North Carolina needs to do right now to its struggling working class consumers is sock them with more high cost loans and/or allow out-of-state debt buying companies to put them out of their houses by garnishing their wages.

Stay tuned to see if they calculated correctly.

http://www.ncpolicywatch.com/2015/04/14/who-asked-for-this/