Report on the Consumer Finance Industry in North Carolina

Research funded by N.C. Commissioner of Banks

The center evaluated North Carolina’s consumer finance industry to recommend how state policymakers can strike the right balance between industry and consumer interests in the provision of retail consumer installment lending.

Project Overview

The 2009 Session of the General Assembly of North Carolina established a Joint Legislative Study Commission on the Modernization of North Carolina Banking Laws and the Consumer Finance Act, which in 2010 conducted a study of the CFA. At the
conclusion of the study, the commission recommended that the commissioner do a further study and report to the General Assembly on the topics set out in the original study: the rise in operating costs for the industry and what impact it was having on the delivery of the product, the maximum amount that could be extended to any single borrower, the rate and fee structure, and strategies for increasing consumer protection and disclosure.

The North Carolina Office of the Commissioner of Banks (NCCOB) was also asked to do a series of tasks including: revisiting past data, reviewing and possibly changing the annual report form, gathering new data, and analyzing this new data. The commission’s recommendations required that any CFA modifications balance “all appropriate consumer protections” with “the requirement for potential profitability of the lender.”

NCCOB sponsored four meetings with representatives of the consumer finance industry and consumer advocates and contracted with the UNC Center for Community Capital to analyze industry profitability based on existing reports submitted to NCCOB as required under the CFA.

The commissioner found that:

  • While there has been an increase in operating expenses of North Carolina consumer finance companies over time, the increases have been covered in substantial part by an increase in the average loan amount. As a result, the majority of these companies remain profitable and the potential for profitability continues to exist under the current framework, although lenders may not be as profitable as they would like.
  • The adjustment of the consumer loan market resulted in a concentration of loan activity in six consumer finance companies and a modest reduction in the number of companies making consumer loans. These developments mirror comparable developments in the banking industry: concentration of assets and activities in a relatively small number of banks.
  • While some concerns were expressed, based on anecdotal evidence, regarding persistent refinancing of consumer loans, no compelling evidence was submitted by consumer advocates or discovered in a review of NCCOB and Justice Department files to support the view that refinancing is an abuse of consumers or in need of remediation.

The commissioner did not recommend any changes in the CFA, either to enhance industry revenue or increase consumer protections. However, as a result of the study, Annual Report forms for consumer finance companies were revised to enhance and standardize the information included in such reports, so that the industry could be more effectively monitored by all stakeholders.

Study findings suggested that efficient and low cost services to the unbanked and underserved market cannot be fully achieved by traditional depository institutions or traditional small loan companies. The commissioner recommended future studies focus on the topic of utilization of advanced communications and information processing technology to reduce the costs and manage risks of financial services to this market.

The UNC Center for Community Capital conducts research and policy analysis on ways to make financial services work better for more people and communities.


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