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Not authorised since 2001. It took a five-year enforcement campaign and a ruling against the largest chain in the country to make that real.
Authorised 1997 · Sunset 2001 · Not reenacted
The General Assembly authorised payday lending in 1997 under a statute that expired in 2001. It declined to reenact it, against a well-funded industry campaign. After the sunset, payday loans were clear violations of North Carolina’s Consumer Finance Act and usury laws.North Carolina · Former regulatorJoseph Smith, former North Carolina Commissioner of Banks — the General Assembly authorized payday lending in 1997 by legislation that sunset in 2001 and was not reenacted; thereafter payday loans were clear violations of North Carolina's Consumer Finance Act and usury laws
The Commissioner of Banks notified every payday lender in the state that they were making illegal loans. Over half of the 1,000 shops closed. The rest went looking for a workaround.North Carolina · Federal agency filingComment to the FDIC on federal interest rate authority — the NC Commissioner of Banks notified all payday lenders in the state that they were making illegal loans; over half of the 1000 shops making payday loans closed their doors
The chains that stayed used the rent-a-bank model — placing an out-of-state bank’s name on the loan documents and recasting themselves as its “marketing, processing and servicing agents”. Rates ran up to 521%.
Then this, from North Carolina’s Attorney General in testimony to the US Senate Banking Committee:
The payday lenders only used these rent-a-bank schemes in states like North Carolina that prohibited payday lending. In states that allowed these high-rate loans, they made the loans in their own names.North Carolina · Senate testimonyTestimony of NC Attorney General Josh Stein to the US Senate Committee on Banking — very notably, the payday lenders only used these rent-a-bank schemes in states like North Carolina that prohibited payday lending; in other states that allowed these high-rate loans, the payday lenders made the loans in their own names
The bank partnership was never about funding or efficiency. It appeared only where the law said no. That is about as close to documented intent as this subject gets, and it applies well beyond North Carolina.
In February 2005 the Attorney General’s office — then under Roy Cooper — and the Office of the Commissioner of Banks brought an enforcement action against Advance America, the largest chain in the state. They argued the loans were caught by the true lender doctrine, which the Attorney General notes has been part of North Carolina law since the 1800s.
In December 2005, after numerous hearings and voluminous evidence, the Commissioner determined that Advance America was itself engaged in the business of lending and in violation of the Consumer Finance Act, and ordered it to cease and desist. The partnership with an out-of-state bank did not let it ignore North Carolina law.
Advance America lost on appeal. In March 2006 the Attorney General announced consent agreements with the three remaining large chains. Storefront payday lending in North Carolina ended.
Research two years after the ruling found that the absence of storefront payday lending had no significant impact on the availability of credit in North Carolina.
Set that against Colorado, where lender numbers fell sharply, and Illinois, where other lenders expanded. Three states, three different outcomes, all measured. The honest summary is that it depends on what else the rules permit — not that the answer is always the same.
You can revoke authorisation and instruct your bank to stop the payment, whatever your agreement says.
What Regulation E says about automatic payments →
A payday loan is a consumer debt. If it goes unpaid, two North Carolina rules decide what a lender can do next: how long it has to sue you, and how much of your pay a court can order taken.
Being sued over an old payday loan? A collector can still file, but the time limit is a defence you can raise — and you cannot be jailed for the debt. What can and cannot happen if you don’t pay →