Let the borrower beware: payday & car title loan companies operating only online are escaping state regulatory functions

LACONIA — The experience of a local woman serves as a reminder of the risks of payday and title loans, or borrowing against the next paycheck or a vehicle title, particularly from firms operating exclusively over the Internet.

Not long ago the working woman whose family was faced with eviction took out a payday loan with a company advertising on the Internet, borrowing $200 for seven days. She was charged $60 for the loan and authorized the company to withdraw the funds from her bank account. However, instead of withdrawing $260 from her account after the seven days passed, the company "rolled over" her loan, charging a fee of $60 each week for the next five weeks.

When the woman discovered that $300 had been withdrawn from her account, she promptly closed it. Then the company began calling her at work, as often as 50 times a day, threatening her with charges of fraud. She turned to an attorney, who advised her to ask for a written statement. After three months she received a demand for $620 from a collection agency. Only when the attorney informed the company it was violation of federal and state laws did it drop its demands.

A payday loan — sometimes called a "cash advance loan," "delayed deposit loan" or "post-dated check loan" — is a short-term loan that may be secured by access to a bank account by means of a paper check or electronic transfer. A title loan is a short-term loan of 60-days or less, secured by a title to a motor vehicle.

All payday and title lenders doing business in New Hampshire, including those operating through the Internet, must be licensed by the New Hampshire Banking Department. There are currently five companies licensed to offer payday and/or title loans — Carbucks of New England, Inc. headquartered in Tampa, Florida; Loanmax, LLC,headquartered in Alpharetta, Georgia; New England Auto Finance, headquartered in Atlanta, Georgia; NH Cash, LLC, headquartered in Bedford, NH and Title Cash of New Hampshire, headquartered in Huntsville, Alabama. Only two, New England Auto Finance with an office on Court Street in Laconia and Title Cash of NH with an office on Main Street in Tilton, operate in the Lakes Region.

Since 2008, the Legislature has wrestled with regulating the annual interest rates charged by payday and title lenders, which reached 1,000-percent for the former and 350-percent for the latter. Legislation that became effective in 2009 capped the annual percentage rate (APR) for both types of loan at 36-percent, the limit set by the federal government on short-term loans to members of the armed forces on active duty.

In 2010 the cap was reaffirmed and extended to all loans of $10,000 or less, prompting a number of firms to shutter some 20 offices and dismiss about 150 employees around the state.

In the following year the number of complaints lodged with the Banking Department against payday and title lenders jumped from 31 to 58, with unlicensed lenders, most offering payday loans on the Internet, representing 52 of the complaints. Some lawmakers claimed that capping the APR drove the industry into cyberspace, beyond the reach of regulators, and proposed lifting the cap to bring the industry under closer state supervision.

In 2011, the Legislature, now controlled by Republican majorities in the House and Senate, overrode the veto of Governor John Lynch to adjust the cap on title lenders from 36 percent per year to 25-per-month for the maximum 10 month term of the loan. As the governor explained in his veto message, a borrower with a $500 loan against a vehicle would pay $1,187 in principal and interest over the life of the loan at an APR of 250 percent.

That same year the Legislature sought to ease the cap on payday loans by allowing lenders to charge nominal interest of $15.50 per $100 installment. With 26 installments per year, the APR would top 400 percent, enabling a lender to charge more than $1,100 to repay a $500 loan. Again Lynch vetoed the bill and this time his veto was upheld.

Currently, the APR on payday loans remains capped at 36 percent while title lenders may charge 25 percent per month.

Meanwhile, as the local woman learned, those borrowing on the Internet are at risk of dealing with unlicensed firms that fail to comply with state law. For example, the Banking Department fielded nine complaints against "Payday-Loan-Yes" — also doing business as Fastcash Advance, CashNet, CashNet500, First National Services, Global Payday Loan, LLC, United Cash Loans and Ameriloan — an unlicensed company based in Nassau, Bahamas. As well as issuing loans without a license, the department found that firm deducted excessive amounts from the bank accounts of the borrowers, both in violation of the law.

The Banking Department sent certified letters to the company at each of three known addresses — two in Utah and one in the Bahamas — requiring it to apply for a license and resolve the consumer complaints. All the letters were returned by the Post Office. But, to this day Payday maintains an active website and offers loans to New Hampshire residents.

The Banking Department maintains a registry of licensed lenders offering payday and title loans along with a list of enforcement actions taken against both licensed and unlicensed lenders on its website (www.nh.gov/banking), which also provides information about payday and title loans.

The department stresses "it is very important that you deal only with licensed lenders in New Hampshire." Although the department can take enforcement action against unlicensed lenders for failing to obtain a license, it notes that "our ability to intervene with the lender on your behalf can be difficult and may not result in a satisfactory solution on your individual loan."