Watchdog group’s analysis shines new and disturbing light on loan industry legislation
Here are three powerful facts to consider about a proposal wending its way through the North Carolina House of Representatives at the behest of the consumer finance industry – i.e. the companies that make storefront loans to low and moderate income consumers at effective interest rates that regularly exceed 50% APR:
In April of this year, an NC Policy Watch Carolina Issues Poll asked nearly 800 voters the following question:
“North Carolina law currently limits the annual interest rate on consumer loans offered by loan companies to around 54%. The companies say they need higher rates to loan to people with poor credit. Do you think lawmakers should approve a bill requested by the companies to allow them to charge an annual interest rate of around 90%?”
The results were as follows:
Lawmakers should raise permissible rates…………7%
Rates should not be raised…………………………84%
Not sure …………………………………………….9%
Fact # 2:
A few months before the release of that poll, the state Commissioner of Banks issued a report that showed that the consumer finance industry has remained quite profitable – even during the depths of the Great Recession when virtually every lending industry corporation in the United States was losing money.
The idea of raising rates on storefront consumer loans above their current rates is strongly opposed by several current and former military leaders. The base commander at Fort Bragg even came to Raleigh testify against the idea.
Sounds like a trio of pretty compelling substantive and political reasons not to advance a bill to jack up consumer loans rates to record levels, wouldn’t you say?
Or so one might think…
Now, flash forward to last week: What would you guess to be one of the top legislative priorities during the waning days of the 2011 session for the Speaker of the North Carolina House – a priority of such importance that the Speaker himself would actually lobby legislators personally and urge skeptical members of his party to vote in favor of it?
If you guessed passing the consumer finance industry’s proposal to raise interest rates and fees well above their current rates, give yourself a gold star from the political cynic’s box.
Amazingly, despite what would seem to be an unbeatable list of substantive and political reasons to send the industry proposal on permanent vacation to that big debt collectors’ boiler room in the sky, not only are the Speaker and his leadership team not affirmatively opposing the bill, they’re going out of their way to pass it.
But how can this be? What would explain such passionate support for such an unseemly and unpopular cause at a time when the Speaker and his team are grappling with a veritable boatload of bills – many of them knockdown, drag out fights – on a long list of controversial issues?
Ideology? It can’t be. The industry isn’t proposing any kind of market fundamentalist deregulation – just higher regulated rates.
An appeal to conservative voters? Nah. Even if the polling question above were altered so as to make it slanted more in favor of the industry position, there’s no way 7 to 84 becomes a majority. The Policy Watch poll even showed that 82% of Republicans opposed raising rates.
The demands of his fellow Republican lawmakers? No way. Many are already publicly opposed. If ever there was an issue in which the Republicans were decidedly not unified (indeed, unusually so) this is it.
So what could possibly be the explanation?
A nonpartisan good government group weighs in
Anyone whose spent more than a few minutes of their life watching political sausage getting made could probably provide a pretty good guess as to what’s behind the House leadership’s support for raising interest rates on consumers, but fortunately there’s little reason to guess. A report issued last week by the nonpartisan advocates at Democracy NC – the good government group that helped bring down former Democratic Speaker Jim Black tells us all we need to know.
The press release/report is entitled: “Legislation to Increase Charges on Small Loans Follows Surge in Contributions from Consumer Finance Industry” and here are some of the key sections:
“During the last election, donors with consumer finance companies gave most of their campaign contributions to Democratic legislators until late August 2010, when they suddenly switched and began pouring more than $100,000 into the campaigns of 15 Republican newcomers challenging Democrats in hot races, as well as the top three Republican leaders in the General Assembly.
‘The industry made a substantial gamble in 2010 by shifting its money from incumbent Democrats to Republican challengers and now it appears to be reaping the benefits of that investment with a bill to enrich the industry,’ said Bob Hall, director of Democracy North Carolina, a nonpartisan watchdog organization that has filed campaign finance complaints against both parties in the past.
The report went on:
“Consumer finance executives and their PACs donated $65,600 to 15 Republican legislative candidates in highly contested races, including 12 held by Democrats and three open seats. Only 3 of the 134 donations to these 15 candidates were made before the middle of August 2010.
In addition, these donors made 47 contributions totaling $45,450 to the soon-to-be Senate President Pro Tem Phil Berger, House Speaker Thom Tillis and House Majority Leader Paul Stam. All but 2 of the contributions were made after mid-August….
After August 15, the donors gave $126,670 to Republican legislative candidates – more than seven times the $17,400 they gave to Democratic candidates in the final months of 2010.
Altogether, these consumer finance donors and their PACs gave $172,320 to legislative campaigns in the 2010 election cycle, compared to $30,250 in 2008 and $77,500 in 2006.”
In short, the industry is, ahem, reaping the benefits of their political investment. As Bob Hall, head of Democracy NC, put it in the report, “It’s hard to explain what’s driving this legislation without following the money.”
But “what about the Democrats?” you ask. Didn’t they take consumer finance industry money for years? Don’t some of them still take it?
Of course they did and do.
But here’s the big difference, with the Democrats, there were fierce divisions in the House and Senate caucuses between Democrats who took the consumer finance industry support and pushed its agenda and those who fought it tenaciously. Ultimately, the pro-industry forces could never prevail in that fight. Meanwhile, Democrats who took the money never lost much sleep over it since the industry had nowhere else to turn.
Last year’s election changed all of that. As the Democracy NC paper shows, when the industry sensed an impending GOP victory, they gleefully seized on it and grabbed for what they hoped would be their big breakthrough.
Now, unlike in the past, their supporters are not just a handful of members in the majority caucus but THE leaders of the House itself. Moreover, unlike with the Democrats of past legislatures, the Republicans have no team of passionate and experienced consumer rights advocates within their caucus willing to slug it out – just a collection of well-meaning but green members hesitant to buck their leaders. Both the industry and the newly elected leaders see this as their big chance.
The ultimate outcome of the current battle remains unclear. Let’s hope, however, – both for the sake of the state’s consumers and the integrity of our political process – that this latest industry effort comes up short again. Try as Republican leaders might to tell themselves that their current foray into seamier side of big money politics bears no resemblance to the “pay to play” culture that claimed former Speaker Black, the hard truth is that before his fall, Black told himself the same thing.