States Ease Interest Rate Laws That Protected Poor Borrowers.
Lenders have come under fire in Washington in recent years. Yet one corner of the financial industry — lending to people with poor credit scores — has found sympathetic audiences in many state capitals.
Over the last two years, lawmakers in at least eight states have voted to increase the fees or the interest rates that lenders can charge on certain personal loans used by millions of borrowers with subpar credit.
The overhaul of the state lending laws comes after a lobbying push by the consumer loan industry and a wave of campaign donations to state lawmakers. In North Carolina, for example, lenders and their lobbyists overcame unusually dogged opposition from military commanders, who two years earlier had warned that raising rates on loans could harm their troops.
The lenders argued that interest rate caps had not kept pace with the increased costs of doing business, including running branches and hiring employees. Unless they can make an acceptable profit, the industry says, lenders will not be able to offer loans allowing people with damaged credit to pay for car repairs or medical bills.
But a recent regulatory filing by one of the nation’s largest subprime consumer lenders, Citigroup’s OneMain Financial unit, shows that making personal loans to people on the financial margins can be a highly profitable business — even before state lending laws were changed. Last year, OneMain’s profit increased 31 percent from 2012.
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