SALEM - Jackie Clemens got a $1,000 title loan yesterday.
The Lawrence, Mass., resident said her roommate had stolen her rent money and she needed the cash right away. So, without many options, Clemens went to Route 28 in Salem, home to a handful of title and payday lenders. She put up the title of her Acura RSX as collateral and got a loan.
"It was my choice. You choose to do it," she said of the decision to take money from an industry many critics have called unscrupulous.
But when told state lawmakers were considering regulations that would effectively put the title and payday lending industry out of business, Clemens answered in a single word: "Good."
Yesterday, the state Senate Commerce, Labor and Consumer Protection Committee heard testimony on proposals that would effectively eliminate title and payday lending in New Hampshire. The House passed a similar measure last month, 207-124.
Many lawmakers want to limit interest rates on those loans to 36 percent annually. Today, title and payday lenders generally charge between 400 percent and 600 percent annual interest.
And representatives of the lending industry said they need the higher interest rates to stay in business.
At 36 percent interest, a $100 payday loan would only accrue $1.38 in interest over the typical, two-week period, said Jamie Fulmer, spokesman for payday lender Advance America, which has outlets in Salem, Derry and Plaistow.
Right now, Advance America would make $20 on that loan, Fulmer said.
Title and payday loans are often for very small amounts - usually not much more than the $1,000 Clemens took out. And the loans are supposed to be paid off quickly, often within two weeks.
Advocates for title and payday lending said consumers want the loans, and said the vast majority of borrowers pay back their loans within two weeks.
Last year, for instance, lenders gave out 150,000 payday loans and 10,000 title loans in New Hampshire, according to Richard Bouley, a lobbyist for Advance America.
Beyond that, 95 percent of payday loans are paid in full and on time, Fulmer said.
But critics paint a far darker picture of both payday and title lending.
"It's a sin and it should be illegal," Salem Human Services Director Bob Loranger said of the lending practices.
Loranger said he sees one or two people trapped by those loans in his office every month. Very often, they took out the loans months ago - when they would have been eligible for welfare assistance but didn't realize it - and have been trapped paying interest and fees ever since.
Just yesterday, he said, a woman came to him because she had been paying $50 per month on a $300 title loan she took out in August. Despite making six payments, she still owed $300 in principal on the loan, he said, and was struggling to pay other bills.
That's what Sen. David Gottesman, D-Nashua, finds galling.
"Even though the industry would like you to think it's only a nominal fee, when calculated, it's an exorbitant fee," Gottesman said.
The problem is that consumers often borrow from one lender to pay another, and get trapped in a cycle of paying high fees for loans, critics of the industry said.
While industry lobbyists said they'd be willing to use a database that prevents borrowers from using one lender to pay another, Gottesman doesn't think that's good enough.
He sees the title and payday loan industry as preying on people with low incomes.
And Jean Fox, spokeswoman for the Consumer Federation of America, agrees.
She said the typical borrower is a low-income person who borrows over and over to stay financially afloat.
The average household income of a payday borrower is $41,000 a year and half the borrowers have some college experience, Fulmer said.
But, Fox said, those borrowers also tend to take out between eight and 13 payday loans each year, often using one loan to pay off another.
Fox applauds the move by the New Hampshire House of Representatives earlier this month to pass a measure capping interest at 36 percent.
Still, no one yet knows how the Senate will rule on the measure.
"It's certainly our hope that the Senate would not take steps to ban the industry," Fulmer said.
How does it work?
A consumer borrows a small sum, typically for two weeks. As collateral, the consumer hands over a check for repayment, which the loan office promises not to cash until the loan comes due.
At Advance America, a $100 loan currently costs $120.
If the repayment check bounces, the consumer has to pay the bounced check fee, but doesn't have to pay anymore than $20 in interest.
The payday loan company can continue to cash the check electronically, though, accumulating extra bounced check fees, damaging a borrower's credit history, and possibly getting the consumer blacklisted by banks and denied a future bank account, according to some consumer advocates.
A consumer takes out a small amount loan, typically with an interest rate similar to the payday loan. As collateral, the consumer offers his or her car title.
The consumer must return the loan amount after a fairly short period of time, usually two weeks. If the consumer cannot pay the loan back, and doesn't come to some kind of payment plan with the lender, the car is repossessed.