Consumers League Opposes A.2355:
The Civil Usury Law is the Cornerstone of Consumer Protection
There is no good reason to repeal the civil usury law, the cornerstone of consumer credit regulation in New Jersey. It serves an important function, and ought to be left alone.
New Jersey's civil usury law, NJSA 31:1-1, was the state's first consumer protection law, and is just as necessary now, because the entire structure of regulating credit, and protecting consumers, depends on the civil usury law. Pull out the cornerstone, and the structure falls down. Volume 17 of New Jersey statutes contains the laws which permit licensed lenders, such as banks, savings and loan associations, credit unions, car dealers, furniture sellers, finance companies, credit card issuers, and home improvement contractors to lend at rates exceeding the usury limit. Each of these statutes uses the phrase "notwithstanding NJSA 31:1-1" or the like to establish that the particular lender: A) upon getting a license from the Banking Dept., is permitted to make the type of loans in question, B) is permitted to lend at a rate higher than the usury limit (which was 6% until 1981, see L.1981, ch 103, 104), and C) most important, the lender must comply with the consumer protections written into the statute for that type of lender and loan.
If there is no civil usury law, we suggest that lenders will no longer need to be licensed, and may stop complying with the consumer protections statutes in NJSA, Volume 17. Surely the Legislature does not intend that that door-to-door home repair financing go unregulated!
If there is no need for lenders to be licensed, then the Banking Dept. will lose substantial revenue, and consumers will lose the rule of law.
If there is no 16% civil usury limit, then unlicensed lenders, such as "payday lenders" (see article from Home News Tribune) and "car pawn lenders" (see Wall Street Journal) may for the first time enter New Jersey. Local bartenders cashing checks and loansharks will get an unwarranted legal "raise" by A2355, because the 16% rate for unlicensed persons will climb to 30%, the criminal usury limit of NJSA 2C:21-19.
Once the civil usury limit is gone, then payday lenders will lobby for a law to explicitly override the 30% criminal usury law, as has been done in Tennessee. The experience of Tennessee and Florida with "payday lending" has been an abomination, with rates over 300% APR charged, and valuable cars repossessed for $500 loans. The purpose of government is to protect its citizens. The civil usury law NJSA 31:1-1 has kept the payday loansharks out of New Jersey. The repeal of the civil usury law would send an unfortunate signal that the Legislature does not care if its citizens are exploited.
New Jersey's civil usury law is over three hundred years old, dating from Colonial days, an import from English law. Exploitation of the poor by high-interest loansharks was a problem then as now. That the law is ancient proves that many generations agreed it was necessary and useful. The laws against theft have equally ancient roots, but we hope the Legislature is not thinking of repealing them too.