Jonathan P. Baird

On Jan. 27, the New Hampshire Legislature will have an opportunity to support consumer protection and to oppose predatory lending. The House will vote on Senate Bill 193, which imposes a 36 percent interest rate cap on all small loans under $10,000. SB 193 has already passed the Senate.
The bill is a follow-up to the legislation passed in 2008 when the state, in very timely fashion, acted to stop financial exploitation of New Hampshire families by regulating payday and auto title loans.
That consumer-friendly legislation protected innumerable people from a debt trap. Given the bad economy, it is highly likely that thousands of citizens would have turned to payday or title loans out of sheer desperation if the option had been available. Payday and title lenders would have reaped a financial bonanza at the expense of economically struggling families.
An interest rate cap is the strongest remedy against predatory lending. Nationally it has proven to be the most reliable weapon for consumer protection, which probably explains why opponents fight it so hard.
There is no question that unlimited interest rates equal usury. Opposing usury is not some fringe, leftwing critique. Christianity, Judaism, and Islam have all scripturally and doctrinally forbidden usury. For most of American history, states have had usury caps in the range of 6 to 8 percent.
Only relatively recently, in the last 40 years or so, a number of states uncapped interest rates. In New Hampshire, that happened in 1999.
The new small loan bill, SB 193, is necessary because predatory lenders have not ceased trying to find a loophole to evade the payday and auto title interest rate cap. While there is a whack-a-mole quality about this, SB 193 should close the door on such usury.
New Hampshire Banking Commissioner Peter Hildreth has had to issue three orders since early 2009 against lenders who wanted to restructure loans to get around the rate cap. It is instructive to take a look at Hildreth’s orders on these loans.
The commissioner found that the interest rates charged by these lenders, roughly 300 to 400 percent annual percentage rate, were unfair. He found the loan products offered were also oppressive and unscrupulous. He described consumers who borrowed $500 for a year having to pay back $2,325 in interest payments.
In May 2009, CashForce USA, a lender, tried to evade the interest rate cap by advertising small loan open-end lines of credit up to $1,500. Hildreth initiated an investigation and ultimately found that the use of monthly access fees and interest would result in a cost of $3,100 to pay off $250 if the borrower paid the minimum monthly payment. The commissioner concluded that such small loan open-end lines of credit were unethical, and he would not allow the product to be offered in New Hampshire.
On Jan. 6, the small loan bill was actively debated by the New Hampshire House. There were four very close votes, and final voting on the bill was postponed until Jan. 27.
While many arguments were advanced pro and con, I did want to address the argument that SB 193 would hurt small business. That is a red herring. The loans at issue are consumer loans – not small business loans. No business could become viable if it depended on a small loan of this nature.
I have to say that I find it hysterical that opponents of the small loan bill leafletted the Legislature on Jan. 6 describing the bill as “anti-liberty.” Apparently liberty includes the freedom to exploit and scam consumers. When you defend 400 percent interest, you are defending the liberty of the loan shark.
It is a bizarro world view that reserves sympathy for userers but has not a peep to say about victimized consumers. Only willfully blind true believers could miss the role free market ideology has played in the collapse of the larger economy.
Free marketeers have brought us such great innovations as the sub-prime mortgage along with the payday loan. These financial instruments stand as perfect symbols of our deregulated age. Could there be any clearer indicator of moral depravity and corruption than these products?
What happens with the small loan bill may well be a harbinger for consumer protection in New Hampshire. Defeat of the legislation may signal a green light for sleazy financial schemers, connivers and predatory lenders of all stripes.