Big Donations from Small Loan Firms Come with Strings

UPDATE: In a victory for consumers and their advocates, Gov. Roy Cooper vetoed House Bill 140 on July 27, sending a profitable proposal pay-to-play benefiting consumer finance companies back to lawmakers. HB140 would allow lenders to tack insurance onto loans in case borrowers cannot repay. Democracy NC called for Gov. Cooper to take action against this legislation and praised the governor’s Thursday veto.

“Making small loans more expensive by expanding credit insurance can drive borrowers further into debt, especially those who can least afford it,” Cooper said in a statement. “If this bill becomes law, consumers will have higher-cost loans because they will be borrowing the money to pay the credit insurance premiums. Borrowers who need short-term loans should not have to pay more for unnecessary insurance.”

Legislation to Increase Rates on Small Loans Follows Surge in Contributions from Consumer Finance Industry

In 2011, Democracy NC documented how GOP leaders in the General Assembly pressured legislators to increase interest rates on consumer loans as a payback for the industry’s surge in donations to the party’s candidates in 2010.

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HB140: Big money in, profitable legislation out

Through last-minute maneuvering by General Assembly leaders, the consumer loan industry won a prize piece of legislation from state legislators who have benefited handsomely from the industry’s campaign donations that total over $500,000 in the past four years.

An amendment to an unrelated bill about dental care will allow consumer lenders to expand the lucrative practice of selling credit insurance on the personal property that borrowers use to secure their loans. Opponents point out that reports from the NC Banking Commission and other agencies show this “credit product insurance” is overpriced and oversold. In North Carolina, less than $9 is paid in claims for every $100 borrowers pay in premiums.*

Rather than justify the amendment on its merits, consumer lenders simply say it “modernizes” the list of items that credit product insurance can cover from the law’s limit to only “household furniture, furnishings and appliances.” In fact, the amendment dramatically expands the list by adding the phrase “and other personal property of the debtor, exclusive of an automobile,” which could include everything from mobile homes to home computers, dirt bikes to boats.

“THIS INDUSTRY HAS A PATTERN OF WINNING LEGISLATION BASED ON ITS CAMPAIGN MONEY RATHER THAN THE LEGISLATION’S MERITS. ” –Bob Hall, Democracy NC

“We’re just modernizing the law,” Royce E. Everette, Jr., told the News & Observer, “making sure everything is clear.” Everette chairs the legislative committee of the Residents Lenders of North Carolina. His family owns Time Investment, a Greenville-based chain of financing stores.

Everette is also one of the most prolific political donors in the state, according to an analysis by Democracy North Carolina, a nonpartisan watchdog group. In the past four years, he has donated to over 60 state legislators and given at least $188,000 to state campaigns and parties. His mother and company co-owner, Gail N. Blanton, donated another $49,200 in that period.

All totaled, about two dozen consumer lenders and their two PACs (Resident Lenders of NC PAC and Security Financing Corp. PAC) gave at least $530,000 to state politicians and party committees from January 2013 to December 2016.

The top recipient of the industry’s money is the state Senate’s leader, President Pro Tem Phil Berger, who took in $48,250. In a surprise move, Berger let the industry’s amendment be added to the dental bill (H-140) on the Senate floor in the final days of the 2017 regular session. It received little debate and was not engrossed in the adopted bill, which shielded it from attention as the bill moved back to the state House for a final vote.

[Read news report about the current controversy involving credit insurance]

“This industry has a pattern of winning legislation based on its campaign money rather than the legislation’s merits,” said Bob Hall, executive director of Democracy North Carolina. “It happened in 2011, when Republican leaders in the General Assembly pressured legislators to increase interest rates on consumer loans as a payback for the industry’s surge in donations to the party’s candidates in 2010. And now it’s happening again.”