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Editorial: Payday lenders get a reprieve Apparently the Senate isn't serious about confronting predatory lenders. The prospects of reforming the payday loan industry dimmed last week in the General Assembly. In all likelihood, lenders will prey on desperate Virginians for at least another year because senators refused to impose sensible restrictions. Both the House and the Senate passed competing bills in the final days before crossover, the midpoint of the assembly session when each chamber finishes work on its own bills and starts considering the ones that passed the other chamber. The House bill would cap annual interest rates on the loans at 36 percent. Interest on loans today can reach 390 percent. To offset some lost revenue, the House bill would allow lenders to charge additional fees. More important, it would cap the number of loans someone could take out each year at five and use a statewide database to ensure no one has more than one loan out at a time. The changes were timid, to be sure, but at least they moved in the right direction. Lawmakers were not likely to protect their constituents from this predatory industry by outlawing it from the commonwealth, though that remains the best solution. Then came the Senate bill. It had many of the provisions of the House bill, but in watered-down form. Fees would be larger and there would be no cap on the number of loans allowed in a year, for example. Sadly, this situation echoes last year. Both chambers passed bills then, but they could not reconcile the differences and nothing happened. Nothing is about all this year's Senate bill is worth. If approved, Virginians in financial distress or unable to understand loan contracts will continue to find themselves caught in a spiral of unpaid loans and mounting debt. That's no different from what happens now. Many senators reluctantly supported their chamber's bill. They now must work hard to push the House bill. It is the only hope for simple reforms that would not end injurious usury but might ease it a bit. Roanoke Times: February 17, 2008
Saturday, February 16, 2008 Predatory Lending -- Short and to the Point On Monday, the Washington Post published an article on payday lending in Virginia. Today, the Post published a letter to the editor written by someone named Leonard J. Koenick, whose letter was apparently prompted by Monday's article. Here it is: Payday loans are not the only predatory lending system allowed in Virginia. I'm a lawyer, and a client recently came to me with something called a "motor vehicle equity line of credit." For the "privilege" of borrowing $300, she had to first pay a $150 "membership fee" and was charged 300 percent interest. Her finance charge was $79.44 per month and, of course, that was only the interest. Her collateral was her car, and she had to give the lender a duplicate car key. She missed one payment; they took her car and sold it. If that isn't criminal, it should be. Washington Post
Senate goes easy on payday lenders For a moment, imagine debt-laden payday loan customers as shipwreck victims, bobbing around in icy water as sharks nibble at their toes. The House of Delegates and the Senate have each sent out a rescue boat. The House boat fishes all of the soggy souls out of the water and hauls them to safety. The Senate boat cruises past the folks who are treading water because they look like they're holding up OK. The senators stop only when someone starts sinking in the waves and sputters out a plea, "Please, toss me a life vest." Delegates and senators will spend the next three weeks arguing over which way is the best to reform the payday loan industry. You don't have to be a fan of the movie "Titanic" to understand that the House has organized the best rescue mission. Payday lenders are supposed to offer small, short-term loans to help people with poor credit get through a temporary emergency. But that business plan can't sustain the 800 debt traps that have set up shop across the state. Predatory lenders survive by encouraging customers to roll their loans over repeatedly, racking up fees that can equal a 391 percent annual interest rate. In 2006, 97,000 Virginians took out more than one payday loan a month. They were trapped in a cycle of debt that consumed them for most or all of that year. To protect their constituents from these kinds of predatory practices, lawmakers must break that cycle. The House bill does so by limiting borrowers to one loan at a time, with no more than five a year. It guarantees customers two payroll periods to clear each loan. The Senate version, preferred by payday lenders, offers minimal help for repeat borrowers as long as they manage to keep their obligations from growing and avoid default. If they get in trouble, they can request extra time to pay off the debt without accruing interest. In states that offer similar extended payment plans, few customers take advantage of the service because they can get a new loan with less cash up front. They learn to cope with long-term debt by treading water, but they can't escape. Until the Senate offers a lifeline to those people, it has not solved the problem of payday lending in Virginia. Virginia Pilot
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. Richmond Times-Dispatch
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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