Banking Commissioner’s Study Just Released on Modernizing North Carolina’s Consumer Finance Act

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The Office of the Commissioner of Banks has just released its findings of a study it conducted on the state’s consumer loan companies. The General Assembly requested the Commissioner, who has supervised these loan offices since the 1940’s, to look at what changes should be made to modernize the existing law. This law, the North Carolina Consumer Finance Act, was last revised in 1983.

North Carolina Personal Loan Industry

North Carolina Personal Loan Industry

There is a vital need and a strong demand for traditional installment loans to help NC families manage their household and personal financial matters.

The Office of the Commissioner of Banks just released its findings on February 18, 2011 of a study it conducted on the state’s consumer loan companies. The General Assembly had previously requested the Commissioner, who has supervised these loan offices since the 1940’s, to look at what changes should be made to modernize the existing law. This law, the North Carolina Consumer Finance Act, was last revised in 1983—and was reviewed in 2010.

The North Carolina Credit and Personal Finance Council (NCCPFC), a group representing North Carolina’s licensed and regulated non-depository personal loan industry, will be immediately reviewing the results of the Commissioner’s findings. They will engage knowledgeable experts from accounting, finance, and customer demographics to conduct a thorough review of the findings.

During the Banking Commissioner’s study in 2010, the NCCPFC provided important fact-based data from expert sources and federal government agencies to the Commissioner. This data revealed that the existing interest rates fixed in law over 28 years ago are unsustainable for today’s business conditions. The NCCPFC demonstrated that a legislative change is needed because the 1983 fixed price schedule is shrinking loan access for North Carolina citizens and harming private enterprise businesses. The goal of the NCCPFC is to assure that North Carolinian borrowers continue to have safe and appropriate access to responsible and affordable personal loans.

Committees of the North Carolina General Assembly determined in both 2008 and 2010 that consumer installment loans have value and are needed by North Carolinians. In May 2010, NC Legislators requested recommendations for modifications to update the Consumer Finance Act. These recommendations to the law were to contain all appropriate consumer protections—and also recognize the requirements for potential profitability for the lender. The purpose of these modifications is to guarantee understandable, transparent, effective and fair installment credit in North Carolina through private enterprise.

“There is a vital need and a strong demand for traditional installment loans to help NC families manage their household and personal financial matters. In two statewide surveys, over 98% of our industry’s customers have clearly communicated that they trust the service in our local offices and they rely on our personal one-on-one service and the responsible, affordable loans we provide.” —Larry Heckner, President of the NC statewide credit group

National consumer advocacy groups have also consistently recognized the need for responsible loans. The Center for Financial Services Innovation, a national consumer advocacy group based in Chicago, recently told the American Banker in October, 2010, “Demand for small amounts of credit is high. We need to increase access to responsible, scalable, and ultimately profitable forms of credit for households that need and can benefit from it.”

During the Commissioner’s review, The Center for Financial Services Innovation presented some of its conclusions from its recently completed report. A major point made was that because of the high-touch aspects of the responsible lending model, installment loans are more costly to provide. The CFIS report concluded that the primary cost drivers of the installment lending model arise from the genuine expense of operation of physical offices, underwriting costs, and the “high-touch” management of the loans.

“We based our presentation to legislators and the Commissioner on two critical elements, first the customer demand for and satisfaction with the consumer finance company product, and also the undeniable economic reality of operating under a price freeze for 28 years. We are confident that North Carolina installment loans meet the benchmarks for high quality credit set by all the major consumer advocacy groups—loans that are marketed transparently, affordable for the consumer and structured to support repayment, and the customer’s repayment is reported to credit bureaus to build a financial future.

“The reality of the economics of this business, long known by us, have now become clear to consumer advocates and federal financial regulatory agencies and we hope the NC Commissioner has recognized them as well,” stated Mr. Wallace. “The FDIC and the Federal Credit Union Administration last year also found that costs and risks for small dollar installment loans are higher than other consumer loans and acknowledged that these rates were necessary to reasonably attract deposit-taking lenders to the business. Still, the profitability results alone were not sufficient for most banks to stay active in making loans and other inducements would be necessary.” —C. Everett Wallace, Policy Advisor and Counsel to the North Carolina Credit and Personal Finance Council

The NCCPFC and other financial experts will immediately review the study results that were just released by the NCCOB and will plan and announce a press conference to present an overview of the Commissioner’s findings and recommendations.

Mr. Wallace indicated that the non-bank installment lending industry provides the most viable and responsible option for consumers:

“The Commissioner’s report is something we hope will lead to a productive and positive discussion of this important responsible loan product for North Carolinians. It is important that this industry’s story of customer satisfaction and service be heard. It is also vital that we help policymakers adopt a contemporary law which can assure there is access to safe, fair, and affordable personal loans for the financial needs of responsible individuals and families in North Carolina.”

Contact: Everett Wallace, 919-389-8822
NC Credit and Personal Finance Council, Suite 1130, 150 Fayetteville Street, Raleigh, NC 27601

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