A decade after North Carolina outlawed payday lending, the short-term, high-interest loans are making their way back into the state through banks, consumer watchdogs say.
"If they weren't a bank, they wouldn't be able to offer this product in North Carolina, " said Chris Kukla, senior vice president with the Center for Responsible Lending, which leads a coalition of groups opposed to what they describe as abusive loan practices. The effective interest rates for Ready Advance loans could be as high as 365 percent annual percentage rate, Kukla said.
But Regions said the payday moniker doesn't precisely fit what they are doing. A spokesman for the bank says it is closer to other types of consumer loans.
"Basically it operates more or less as a small-dollar line of credit, " said Regions' spokesman Mel Campbell.
Payday lending banned in NC
North Carolina allowed payday loans for four years from 1997 until 2001, but lawmakers allowed legislation authorizing the store-front shops to expire under pressure from consumer advocates, regulators and the military.
Although the fees were typically small, they amounted to annual percentage rates that far exceeded the state's usury laws. And because they had to be repaid quickly – often in one lump sum – they could recreate the problems that forced a user to seek a short-term loan in the first place.
"The loans are a highly controversial form of credit, as borrowers find fast relief but often struggle for months to repay obligations marketed as lasting only weeks, " according to a report by the Pew Charitable Trusts.
Since then, banks avoided offering products similar to payday lending, at least partially in deference to North Carolina's laws.
Regions Bank began offering its Ready Advance product here 18 months ago, Campbell said. Kukla said that he views this as the first time a bank has broken what was an de facto embargo on the practice, but it may not be the last. He said SunTrust, a much larger bank that has seven branches in Raleigh alone, has approached consumer advocates to discuss bringing in a similar product.
Payday loans in Australia are part of the small loans market, which was estimated in 2008 to be between $800m and $1bn a year, although it seems likely that the true market was and currently is higher than this.
The growth of this market mirrors the growth in Canada, the United Kingdom, and the United States. Because the market for small loans...
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