NEWSPAPER ARTICLE IN THE ASHEVILLE CITIZENS-TIMES BY C. EVERETT WALLACE

February 19, 2010

Credit where credit is due

C. Everett Wallace

Those of us who are involved in providing credit to the people of North Carolina sit up and pay attention when we see an editorial such as the one that ran in this newspaper last month ("Predatory lending practices march on and on" January 26, 2010).

We know that the lending industry has attracted a great deal of ire from the public in the wake of our nation's recent economic troubles. People are looking to policymakers in Raleigh and in Washington, D.C., to ensure that lending can never again be allowed to get out of hand.

We are also painfully aware that many solutions proposed by advocates in our state run a real risk of cutting off credit to the neediest of borrowers when they need it most.

There is currently a dramatic credit crunch in this country. The availability of credit has deteriorated - especially for small businesses and middle- and low-income families.

While the traditional installment credit industry did not create this crisis, the impact on our customers has been substantial. Rising unemployment, shrinking property values and new limits on available revolving credit are all placing an increasing number of people "between a rock and a hard place."

The Wall Street Journal reported that over the past year, credit card issuers have reduced credit by $1 trillion and are expected to subtract another trillion by the end of 2010. One quarter of American families live in homes that are worth less than the amount they still owe on them. The days of using one's home equity to meet credit needs has passed.

Since 1911, state-licensed, traditional installment lending businesses have made loans in amounts that borrowers could afford to repay, only to those borrowers judged to have the ability to repay.

We still believe this is the most responsible credit option, particularly when compared with the cost of overdraft protection, credit card charges, or refund anticipation loans often used by lower income individuals. Unlike the tricky terms of frequently criticized consumer loans, traditional installment loans are simple, understandable and sustainable.

These loans are often for small amounts to cover basics like school supplies, auto repairs, furniture and baby clothes. When the North Carolina Consumer Finance Act was passed in 1982, it set rates and charges that were appropriate for that time. The problem is, these have remained substantially unchanged throughout the years. In today's economic reality, many of the companies that have made small consumer loans ($500-$1,500) for the last 100 years are no longer able to sustain their business.

To address this, the North Carolina General Assembly must modernize the Consumer Finance Act. This Act has not been substantially changed since 1982 and does not reflect the true costs of providing unsecured, nondepository consumer credit in North Carolina in 2010.

We strongly advocate that the state play a role in supervising the consumer credit market. We believe, however, that ultimately, government price controls unfairly deny consumers access to the credit service that they need.

It is critical that policymakers leave pricing, to the greatest extent possible, to the marketplace. We welcome fair competition from all credit sources in the marketplace, but we reject unfair pricing and product comparisons, failing to take into account the differences in each lending institutions' business model.

NCCPFC believes that legislators, regulators, advocates and industry representatives must come together to modernize our state's existing consumer lending laws, to ensure that unsecured consumer loans of all sizes remain available and affordable for the citizens of North Carolina.

Otherwise, they will vanish forever, leaving only more risky options in their place.

C. Everett Wallace, Esq. is the North Carolina Credit and Personal Finance Council's lead facilitator for public policy discussions.