The New Hampshire Banking Department recently issued a declaratory ruling that the offering of small loans with APRs of 365% or more constitutes an unfair trade practice and therefore is unlawful in New Hampshire. The Department indicated that all institutions regulated by the Department are bound by the order.

    The Department analyzed the permissibility of the small loans under consideration under the New Hampshire Consumer Protection Act (“CPA”), which generally prohibits unfair or deceptive trade practices. N.H. Rev. Stat. Ann. § 358-A:2. The Department indicated that an APR of up to 365% or more on a small loan is not only unfair, but also is oppressive and unscrupulous and causes monetary harm to consumers.

    In finding the loan unlawful, the Department was influenced by the New Hampshire legislature which, when capping interest rates on title and payday loans at 36%, indicated that (i) interest rates of 350% and more are unfair and improper and (ii) charging more than 350% is unreasonable and predatory. The Department also cited studies that purportedly show that high interest rate loans lead to consumer bankruptcies and financial distress and that consumers use these loans only because they have no other options. With respect to the monetary harm caused, the Department pointed to an example of a high interest rate loan that would cause a consumer to pay over five and a half times the principal of the loan, which the Department characterized as oppressive. The Department indicated that it was not in the public interest to protect only consumers of title or payday loans with APRs of 350% or more, and thus indicated that the interest rates on the small loans under consideration fell within the scope of the CPA.

    While ruling that an APR of 365% or more is unfair, the Department specifically stated that its ruling does not render an APR of less than 365% for a small loan valid or fair.

    This decision, like the recently promulgated Regulation AA rules, reflects a trend toward using unfair or deceptive acts or practices principles to rein in otherwise legal conduct in consumer financial services.

    • Michael Tomkies and Charles Gall