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Va.
localities push lawmakers to cap payday loan interest rates
By DENA POTTER
Associated Press
Writer
November 4, 2007
RICHMOND
, Va.
Localities across
Virginia are urging the General Assembly to cap
the annual interest rate payday lenders can charge at 36 percent, something
legislators have refused to do and a ceiling the lenders say will drive them out
of business.
The movement started in the Shenandoah Valley in
September and has spread across the state, with about a dozen localities passing
resolutions supporting the cap on consumer loans and dozens of others
considering doing so. Charlottesville will vote
on a resolution Monday, followed by Pulaski on Tuesday.
"This kind of initiative is showing that citizens in localities all over the
commonwealth are encouraging our elected officials in Richmond to curb the
abusive practices in this industry," said
Charlottesville councilman Dave Norris, who runs a homeless ministry. "I
think it certainly sends a strong signal."
Efforts to place modest reforms on the payday lending industry died in the
General Assembly this year when negotiations broke off between industry
representatives, consumer advocates and the governor in the session's final
hours.
"If I really felt that the reforms that were floated last year were in truth
meaningful reforms, that they would in fact protect consumers, then I would
certainly be in favor of them," said Bruce Elder, a Staunton councilman who
drafted that city's resolution, the first one in the state.
"But upon my study of this issue, this is the most reasonable thing that we can
do, and 36 percent is a terrifically high interest rate; 400 percent is
unconscionable."
Elder mirrored Staunton 's resolution after one Congress passed last year that
caps the interest rate on payday loans, vehicle title loans and refund
anticipation loans granted to members of the military and their dependents.
Staunton 's passed unanimously on Sept. 13, and city officials distributed
copies to every town, city and county government in the state.
Harrisonburg , Waynesboro and the town of
Shenandoah were the first to follow suit. Since
then, the initiative has spread from far southwest Virginia to the
Northern Neck.
Some localities, including Arlington , Newport
News and Norfolk , have included the issue in
their legislative agenda but have not passed resolutions.
The Virginia Municipal League and the Association of Counties have yet to take a
position on the issue. Most county boards of supervisors also have held off
until after this week's elections, when many of the seats are on the ballot.
Though not unprecedented, it is rare for localities to take such action on a
statewide issue, said Jay Johnson, state chair of the Virginia Organizing
Project, a nonprofit, nonpartisan social-justice group.
"Some of it, I think, is a matter of heart, and some of it is a matter of
politics," Johnson said. "Some of it has to do with the fact that they need to
let their own constituencies know that they are doing something."
Payday lenders have said an interest rate cap would put them out of business; a
36 percent ceiling would prohibit them from charging more than $1.38 for each
$100, two-week loan.
Currently the industry charges $15 for every $100 loaned up to $500. The lender
holds the customer's check until his or her next payday, when the borrower
either pays off the loan or the lender cashes the check.
When calculated as an annual interest rate, it comes out to upward of 400
percent for a two-week loan. But industry supporters say that's not a fair
assessment, because the $15 per $100 is a one-time fee that does not accumulate.
They also question what would happen to those who rely on payday loans to bridge
the gap between paychecks. The Bureau of Financial Institutions reports that
nearly 434,000 people took out more than 3.5 million payday loans in
Virginia in 2006.
"The problem is providing an alternative to poor people who don't have credit
and have a short-term, acute financial crisis, such as they just lost their job
and they can't pay their light bill," said Sen. John
Edwards, D-Roanoke. Several localities in his district are considering
the resolution.
Instead of the 36 percent cap, Edwards favors reforming the industry. Still, he
acknowledged that the movement to cap the interest rate is gaining momentum.
"The opponents out there who want the 36 percent cap are pretty adamant, and
they're getting stronger," Edwards said.
Some localities, like Norfolk and York County ,
have passed ordinances restricting where payday lenders can set up shop.
Norris said he expected to see more go that route if the General Assembly
doesn't act this winter, but he would prefer the state to act "so that we don't
have to have a hundred different zoning ordinances written up all over the
state."
A handful of states, including neighboring Maryland ,
North Carolina and West Virginia , cap
payday interest rates at 36 percent. Washington , D.C.
, recently approved a 24 percent cap.
"People were able to borrow money prior to 2002," Elder said. "In the 13 states
where payday loans are illegal, people haven't had to get up and leave. They
haven't had to pick up stakes and leave because they couldn't borrow 300 bucks."
Copyright © 2007,
Newport News, Va., Daily Press
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