The Growing New Hampshire Payday Industry
By Paul RizzoPayday Loan Writer
About once a month, Leah Gabriel makes a trip to Advance America to take out a payday loan, according to a report in today's Nashua (N.H.) Telegraph.
“If I have a car problem, it helps me out, or if I need extra cash,” said the woman.
The situation is different for one Nashua man who earns $11 per hour and uses payday loans to cover his living expenses. The man, who asked that his name be kept private, also visited same the Advance America branch on Thursday. He has visited the payday advance loan center every other week for three years.
“It’s like a drug now,” said the man. “You can’t get out of it.”
He estimates that payday loans have cost him $2,600 a year in interest for three years. For instance, when he borrows $500 against his next paycheck, he has to write a check to the lender for $600 (the $500 he borrowed, plus $100 interest). He pays the 521 percent APR because he says it’s his only option. New Hampshire is the only state in the region without an interest rate cap on payday loans, and stories like the one above have become more and more common.
More than 5 million people across the U.S. take out traditional and online payday loans each year, according to the Annie E. Casey Foundation. It’s an industry that’s growing rapidly in New Hampshire, with more than 100,000 payday loans written in the state for an average loan of about $360 last year alone. Six companies operate 30 payday loan stores throughout the state, an increase from 24 stores in 2004.
“It’s a debt trap,” said Jonathan Baird, managing attorney of the Claremont office of New Hampshire Legal Assistance. “People who need short-term money get hooked into where they end up owing more and more money and they never escape. There’s a lack of public awareness about the issues.”
QUICK AND EASY PAYDAY LOANS
Advance America is famous for its yellow signs and “quick, easy, hassle free” promises for loans. The company has 17 stores in New Hampshire and 2,640 centers nationwide. The drill is simple. Payday loan firms like Advance America and Check ’n Go give borrowers cash in exchange for post-dated personal checks that they hold until the consumer’s next payday.
Credit and background checks are not required. These payday advance loan firms say they provide a necessary service to people who need small loans in the event of emergencies. They also say that calculating the interest rates on an annual basis is misleading because the loans are usually for two weeks tops. But consumer advocacy groups say they are money traps.
Not so, according to Jamie Fulmer, Advance America's director of investor relations, who says the median income of his employer's customer base is $40,000 a year. Just under half of Advance America’s customers own their own home, and 90 percent have at least a high school diploma. Many payday loan firms assert that two-thirds of their customers use their cash advances for emergencies, while the other third use them as disposable income.
“I’d rather do this than bounce a check,” said a 32-year old female Advance America customer in Nashua on Thursday. “I think it’s a good thing if you need it at the time.
In 2004, 89,706 loans worth about $31.8 million were written in the Granite State, according to the New Hampshire Banking Department. The average loan was for $354.85. In 2005, the 114,565 loans written in N.H. were for about $41.4 million, an average of $361.78 per loan and marking a 28 percent increase in overall business.
NO PAYDAY LOAN LIMITATIONS
When state lawmakers removed the interest rate cap on small loans, payday advances sprouted all over New Hampshire. There were no payday lenders in the state prior to 2000. Now, there is no limit on interest that can be charged on payday loans in New Hampshire, although there are no fees or surcharges permitted.
Advance America says about 98 percent of its customers pay off their loan by the due date. But even without the excess fees and penalties, interest keeps compounding. That, and failure to repay loans leads will often lead to bounced check fees from the lender and the borrower’s bank, negative credit ratings on credit reports, possible loss of existing bank accounts and difficulty opening a new one.
In 2003, the New Hampshire Legislature adopted regulations that limited the amount of a payday loan to no more than $500 at any one time. The minimum term of a payday loan in New Hampshire is seven days, the maximum term is 30 days, and extensions aren’t allowed. But consumer advocates say that doesn’t matter much, as people will just go to another company for the payday cash advance they need.
Just over the border in Massachusetts, there are no payday lenders. There, small loans have always been capped at a 23 percent annual rate and no more than a $20 annual fee, according to David Cotney, COO of the Massachusetts Division of Banks. As a result, some people are crossing the border into New Hampshire to take out payday loans.
In Massachusetts, payday lenders are effectively shut out by restrictions on fees, but that has not stopped them from attempting to issue no faxing payday loan funds online. State officials are going after lenders trying to operate this way, too. Last year, the Bay State sent out 95 cease-and-desist letters to online payday loan firms.
New Hampshire has gone after nhcash.com, an Internet payday advance company that’s accused of rolling over customer loans.
