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Payday Loans Cap Supported Some House leaders who sided with lenders before now favor curb on rates
Tuesday, Feb
05, 2008
- 12:09 AM Influential allies of payday lending are turning against the industry, raising the stakes in the fight over legislation to clean up the high-cost, instant loan business. A bipartisan group of House leaders yesterday proposed a 36 percent cap on interest rates, limiting loans to five per year and no more than one at a time, but allowing lenders to collect a 10 percent fee on loans, which are now restricted to no more than $500. Supporters of House Bill 12 include Speaker William J. Howell, R-Stafford, and House Commerce and Labor Committee Chairman Terry G. Kilgore, R-Scott, both of whom last year sided with lenders in opposing a rate cap; also Del. Dwight Clinton Jones, D-Richmond, head of the Legislative Black Caucus, for which a clampdown on payday loans is a priority. Later, Senate Republican Leader Thomas K. Norment Jr., R-James City, another friend of payday lenders, told the industry's lead lobbyist, Reginald N. Jones, that if a deal is not reached this year, "I could be convinced the best thing to do might be to abolish the industry." Yesterday's developments indicated that, despite the millions of dollars lenders are spending on lobbying, contributions and advertising, lawmakers are wearying of an issue that is inflaming constituencies within both political parties and is seen by a growing number of local governments as destabilizing communities through mounting personal debt. "We've got to get rid of the issue this year," said Sen. John S. Edwards, D-Roanoke, who last year backed industry-written safeguards. "There is either serious reform or just cap it." The industry vowed to fight on, depicting the House plan as unfair to its customers in need of small loans and a death sentence to money stores whose profits would be sharply reduced. An executive of the industry's trade group, former South Carolina state Sen. Tommy Moore, complained that it had been shut out of talks on the House bill. "In essence, legislators are painting consumers with a broad brush and attempting to create a financial product that will not work in the free market," Moore, a Democrat, said in a written statement. Currently, lenders collect $15 on every $100, setting the initial cost of a $500 loan -- the maximum under Virginia law -- at $75. A 36 percent cap translates to about $1.40 per $100, not enough, the industry says, to keep cash stores in operation. Though the state was opened to lenders in 2002, a backlash against the industry -- it is depicted as ensnaring the unsuspecting in debts that can take months or years to repay -- has left Virginia surrounded by jurisdictions that have banned lending or dramatically restricted it. House Bill 12 is expected to emerge today from the Commerce and Labor Committee and could be on the House floor by Friday. Supporters are predicting a hefty vote for the measure, perhaps weakening the resistance of the industry's top supporter in the Senate, Richard L. Saslaw, D-Fairfax, the majority leader and chairman of the Senate Commerce and Labor Committee.
"The bigger
the vote in the House, the more it puts it on Senator Saslaw's desk," said Del.
John M. O'Bannon III, R-Henrico. Public Interest Tuesday, Feb 05, 2008 - 12:09 AM An impressive coalition of House Republicans and Democrats announced a proposal yesterday that could lead -- finally -- to meaningful reform of the payday-lending industry. The plan appears to offer real protection for down-on-their- luck consumers who are too easily drawn into a spiral of debt and ballooning fees and interest payments. The deal might just mix the right combination of good policy and broad support needed to become law. The legislation would allow the lenders to charge a 10 percent fee for loans, less than the 15 percent they typically charge now -- and would cap annualized interest expense at 36 percent. It also requires lenders to send loan information to a database overseen by the State Corporation Commission. Borrowers could receive no more than five payday loans per year and only one at a time. That means someone with a loan outstanding from one lender could not cross the street and receive another from a competitor. The deal also mandates a 24-hour period between loans. And it applies to the Internet -- though we'd like to see more about how the legislators intend to effectively enforce the lending rules online. Supporters include key Republicans -- Terry Kilgore and Speaker Bill Howell -- and important Democrats, such as Dwight Jones and Jennifer McClellan, as well as a disparate coalition of civic and religious groups that have been working hard for reform. The terms appear fair enough to the lenders. If the companies can't turn a decent profit at these rates, it would seem to be an admission that their return on investment really is dependent on customers falling into a deep money hole. It's always dangerous to proclaim a breakthrough when discussing the General Assembly. But this bipartisan effort from the House (!) offers the foundation for what could be one of this session's signal accomplishments. We urge the Senate not to squander the opportunity.
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