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dailypress.com Showdown Payday lenders get a big, fat Valentine February 14, 2008
The state
Senate passed a payday lending bill Tuesday unabashed in its willingness to
pander to an industry that lobbies hard and gives legislators large sums of
money, while exploiting Virginians in vulnerable financial straits. Copyright © 2008, Newport News, Va., Daily Press
Payday
Parasites Thursday, February 14, 2008; A24 BY OPENING Virginia 's doors to the payday lending industry in 2002, lawmakers in Richmond in effect declared open season on some of the state's most financially strapped and vulnerable residents. In the wake of the legislature' s action, hundreds of lending stores set up shop, mostly in poorer neighborhoods, offering quickie loans at usurious interest rates to people living paycheck to paycheck -- in other words, to borrowers who could ill afford interest rates approaching 400 percent. So many Virginians have been so badly gouged that even one of the primary sponsors of the 2002 legislation has publicly recanted. "I'm embarrassed I was ever affiliated with it at all," said Del. Harvey B. Morgan (R-Gloucester) . The loans are a rip-off, luring working-class borrowers into a sinkhole of debt. Lenders offer a cash advance of a few hundred dollars backed by the borrower's next paycheck, charging fees of about $15 per $100 lent. If borrowers do not repay in full or on time, and the large majority do not, the lenders can withdraw the money from a borrower's bank account or, if that's empty, roll over the debt to the next paycheck. It's hard to see how Virginians have benefited from such legalized parasitism. On the other hand, it's perfectly plain what compelled lawmakers to allow it. The payday lending industry has dumped cash into lawmakers' coffers for years. A pair of friendly legislators, Phillip A. Hamilton (R-Newport News) and Robert Tata ( R-Virginia Beach), were even treated by industry lobbyists to a trip to the Masters golf tournament in Georgia. The industry also has a powerful ally in Sen. Richard L. Saslaw of Fairfax, the Democratic majority leader. Shamed in part by Congress, which capped interest rates for payday loans to military families at 36 percent, Virginia lawmakers have passed bills doing the same, while at the same time allowing heavy fees to drive up the real cost to borrowers. The House-approved version is somewhat tougher than the Senate's -- it would cap the number of loans a borrower could obtain annually and extend repayment times -- but neither goes far enough. Both pieces of legislation would retain a system by which these lenders can prey on vulnerable Virginians. Mr. Saslaw and the lending industry's other champions say that if borrowers are unable to turn to payday lenders, they'll go to the loan shark on the corner. That's a dubious argument. The fact is that payday lenders manufacture demand by dangling money before generally unsophisticated borrowers -- on terrible terms. Lawmakers should listen to the stories of borrowers trapped by payday loans and reassess their position.
Compromise That's Needed for Paydays Lynchburg News & Advance Wednesday, February 13, 2008
The compromises reached in the House in the past week will help break the cycle of debt that exists for many in the state by allowing no more than one loan at a time industry-wide, no more than five loans a year and two full pay cycles per loan to repay the loan. These are reforms that will allow the industry to keep its doors open in Virginia , but that also provide long needed changes to protect clients from getting too many loans that they find impossible to pay back. One of the key reforms sought by payday loan industry opponents was a 36 percent cap on the annual interest rate lenders can charge. They got that, but the legislation also allows lenders to charge other fees similar to those already in place. For example, lenders could charge a fee of 10 percent of the total loan, a $5 verification fee and then 36 percent interest on the loan. For a $300 two-week loan under current law, the borrower would have to pay $345. Under the new proposal, it would cost about $338 over four weeks. That’s not a huge savings, but it’s a step in the right direction. The typical fees currently charged by the industry amount to $15 per every $100 borrowed for a period of two weeks. That translates into an annual interest rate of about 390 percent, which is outrageous. The industry, of course, defends the practice by calling the $15 a fee for the loan and not interest. It still translates to a usurious 390 percent interest. The bill also requires creation of a database that lenders would use to ensure customers meet the new eligibility criteria. Del. Chris Saxman, R-Staunton, whose legislative proposal became part of the compromise, said last week the “overriding concern was to break the cycle of debt but still allow people to have the opportunity to have access to loans.” The House overwhelmingly approved the measure, 91-7, with the hope that the vote will send a message to the Senate that reform of the payday lending industry is critical for Virginia . Industry lobbyists have vigorously opposed the House bill, saying it would dramatically alter the business model and possibly drive payday lenders out of the state. Well, altering the business model is exactly what is needed. As for driving the industry out of state, many folks will say that wouldn’t be such a bad thing. While the Senate has focused on a measure that contains reforms embraced by the industry, House leaders say they will insist on major reforms. They should. The Assembly has wrestled with this issue for three years, virtually ever since it approved legislation welcoming the payday loan industry to Virginia in 2002. That was the first mistake, but reforming the industry is the current issue and one that can’t be put off by way of legislative stalemate again.
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