The New York Times has an in-depth look this morning at how several states are updating their lending laws to allow lenders to increase the fees and interest rates they charge borrowers with poor credit scores. Among the states to loosen lending laws was North Carolina, where Republican House Speaker Thom Tillis helped guide the overhaul to passage. Tillis is now the GOP's nominee against Democratic Sen. Kay Hagan.
According to the Times, lenders have lobbied for the changes by citing "the increased costs of doing business, including running branches and hiring employees." It's a rich argument to make at a time when bank profits are near record levels. Moreover, the Times points out, regulatory filings show that lending to borrowers with subpar credit scores can itself prove "a highly profitable business."
The effort to loosen North Carolina's lending law started in 2011, after Republicans took control of the state Legislature. Military commanders at Fort Bragg and Camp Lejeune lobbied vigorously against the overhaul, the Times notes, warning that it could saddle soldiers with "out-of-control debt." The commanders' opposition to the bill proved too much for the industry to overcome that year.
But last year, lenders revived their push. With some commanders fatigued from their previous battles against loosening lending laws and others new to their posts, the state's military commanders opted to remain neutral. The Times notes that the Center for Responsible Lending also abandoned its opposition "after the industry agreed to slightly lower the proposed rate increases at the last minute." Whereas the 2011 legislation would have permitted lenders to charge 30 percent interest on loans up to $1,000 and 18 percent on a remaining balance of $6,500, the 2013 legislation permits up to 30 percent interest on a loan's first $4,000 and 24 percent for the next $4,000.
At the center of the fight was Tillis, who has been pivotal in pushing conservative policies like voter ID legislation, cuts to unemployment benefits, tax cuts for the wealthy, and abortion restrictions through the Legislature. Tillis, the Times observes, "has received more money from the American Financial Services Association than any other Senate candidate."
Tillis' campaign manager told the Times that Tillis was simply taking account of "the risks [that] can drive up the rates" when he voted for the legislation, which Gov. Pat McCrory signed into law. Rick Glazier, a Democratic state representative, offered the Times a sharply different take on the new law.
“It was one of the most brazen efforts by a special interest group to increase its own profits that I have ever seen," Glazier told the paper.