The Legislature is poised to pass a bill next year that would cap interest rates for payday and title loans, short-term, high-interest loans designed to help borrowers deal with unplanned expenses between paychecks. But lawmakers are at odds over the percentage at which to impose the cap.

The House Commerce Committee will recommend a bill to impose a 391 percent cap on annual interest rates for payday loans, and a 268 percent interest rate cap on title loans, reducing the fees borrowers must pay while ensuring the business remains profitable for lenders.

But consumer advocates are pushing for an alternative bill, which the committee voted not to recommend, that would cap the rates for both types of loans at 36 percent. They said anything less will fail to protect consumers, who can be trapped in a vicious debt cycle.

They are ramping up their efforts to raise awareness about the bill before the House votes next year. Supporters said they are confident they can pass a 36 percent cap even without the recommendation of the committee.

Covering costs

Payday loans are short-term, cash loans that do not require a credit check. In New Hampshire, customers may borrow up to $500 and must repay it within two weeks. In exchange for cash, a customer shows a pay stub and writes a check to the lender for the full amount of the loan (plus a fee) that will be cashed on the borrower's next payday.

For every $100 borrowed, the customer is charged a $20 fee. For a two-week, $500 loan, the customer would pay $100 or 20 percent interest - which translates to 520 percent a year.

Payday lenders say it is unfair to calculate the interest rates as an annual percentage because money is only borrowed for two weeks. A customer would have to take out a $500 loan every two weeks for one year to accrue that kind of interest, and lenders say few customers do that.

"The notion that an APR is the appropriate value indicator for our product is somewhat misleading," said Jamie Fulmer, a spokesman for payday lender Advance America, the largest payday lender in the country. "The customers care more about what they're reaching into their pocket and paying for a product."

A 36 percent APR on a two-week loan would mean that, for every $100 borrowed, lenders could only collect $1.38. That amounts to fewer than 10 cents a day. In Oregon, where a similar cap was passed earlier this year, Fulmer said Advance America has shut down nearly all of its operations.

"We can't make a loan for less than 10 cents a day, assume all of the overhead costs, assume all the potential loss," Fulmer said. "It's not a matter of profit. It's a matter of not being able to cover your basic overhead costs.

"Let's make no mistake about it," he added, "a 36 percent rate cap would put the industry out of business in New Hampshire."

But consumer advocates say the rates are outrageous and take advantage of people facing desperate financial situations.

Distressing situations

Rep. David Smith, a Nashua Democrat, introduced the bill last year to cap interest rates on payday and title loans at 36 percent. Title loans are similar to payday advances but require the borrower to turn over the title of their car instead of a check.

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