Thanks to Lauren Dorgan for this story:

This shows that as long as consumer demand is in place for short-term credit, lenders will find the means to provided it.

Payday Lender Hopes To Dodge Rate Cap ; One Business Thinks It Found A Loophole

The Concord Monitor

December 30, 2008

New Hampshire

By Lauren R. Dorgan

The lights have gone out at Main Street Payday Advance in Concord. A sign posted on the door explains that the store is closed “due to recent legislation passed by your elected officials!”

That’s just what many lawmakers hoped would happen last winter when they voted to cap annual interest rates at 36 percent starting Jan. 1, 2009. The restrictions effectively banished two growing loan industries: title loans, which charge 350 annualized percent interest, and payday loans that typically top 500 percent annualized interest.

But a block down South Main Street, something is happening that no one expected: An Advance America shop is still open for business and has no plans to close. If proprietors get their way, that shop and 23 other branches statewide will continue offering high- interest loans long into the new year.

According to a letter sent to the New Hampshire Banking Commissioner, Advance America wants to switch over to doling out open-ended small loans, which, it claims, are “not legally subject to the 36 percent interest rate cap” on title and payday loans, according to a letter written by attorney Steven Lauwers of Rath, Young & Pignatelli.

“(T)he interest rate on open-end small loans is not capped at 36 percent,” Lauwers wrote in a letter dated Dec. 9. “Instead, any interest rate is permitted, provided it is agreed to in writing by the lender and the borrower.”

Advance America has asked Banking Commissioner Peter Hildreth for his opinion on whether it’s right about the lack of limitations on the interest-rate cap. Hildreth has not made a ruling yet, but he said he’s talking to lawyers and considering the likelihood that Advance America would take its case to court if he rules against it. He said he would likely make a judgment call this week or next.

“They’re saying it isn’t a payday loan - it might have a high interest rate but it’s not a payday loan,” Hildreth said. The bill that passed the House and Senate last winter specifically refers to a cap on “payday loans.”

Although Hildreth spoke out in favor of the payday lending restrictions last year, he said that has little to do with his decision now.

“I have to do what the law says,” he said. “That’s what I’ve sworn to do. So it doesn’t really matter what my position on the bill was.”

The new product Advance America is pitching has terms that sound akin to a credit card with extremely high interest rates. According to the letter Advance America sent to Hildreth, the new “Credit Line Product” would involve offering consumers a line of credit in the range of $500 to $700 and allow them to withdraw advances on this line in $10 increments.

If a customer pays off the debt by theof the month, no charges will be added. But if the customer rolls over debt, Advance America would charge interest at an annual rate of 365 or 465 percent, the lower rate going to those who allow the company to deduct the “finance charges” directly from their bank accounts.

At present, payday lenders typically give two-week-long loans in amounts ranging from $100 to $500, with interest of $20 per $100, which equates to more than 500 percent on an annualized basis. The loans are secured with a pay stub, while title loans are guaranteed with a borrower’s car put up as collateral.

The industries’ supporters say car and title loans give an option to those people with spotty credit history who have little chance of getting a bank loan and who otherwise might turn to the welfare office. They also argued that the payday lending industry provided jobs to 200 New Hampshire residents.

But opponents won the day in the House and Senate last winter by arguing that the interest rates trap borrowers in a cycle of debt with oppressive rates.

“Interest rates just got out of sight,” said Sen. Lou D’Allesandro, a Manchester Democrat who supported the payday lending crackdown last winter. “People were just amazed at the 500 percent. I think in good conscience the idea was to get rid of it and look for an alternative.”

Yesterday, Advance America spokesman Jamie Fulmer said the company had no plans to shut down any of its 24 branches in New Hampshire, which he said employ 50 to 75 people.

“We look for ways to satisfy consumers’ short-term credit needs,” he said. “Especially in today’s economic environment, access to credit is extremely important to consumers.”