Sunday, August 13, 2006

Just last year, Delegate Glenn Oder was considered an enemy of payday loans in Virginia. However, after striking down his own proposal to regulate cash loans in the state last year, Oder is now receiving criticism for a new bill he recently sent in for the 2007 General Assembly session that will put new restrictions on the payday lending.

The Daily Press reports that the 2007 version is weaker than the original and has drawn some opposition from instant payday loan opponents.

Oder is one of many Virginia legislators who want to slap restrictions on the booming payday advance industry. The evolution of his attempts to regulate the high-interest loans shows how the industry has used its growing political might to fend off its opponents, though.

"I would prefer that we didn't have payday lending in Virginia, but I don't know how we could eliminate it," said Oder. "My goal is to do what I believe is politically possible in Virginia."

Many consumers don't like that sort of concession. Virginia now has more than 750 lenders, which made almost $1.2 billion worth of regular and no fax payday loans to 446,000 consumers in the state in 2005. It's a growing issue of debate and conflict.

These companies, along with their supporters in the General Assembly, argue that the personal loans fill a short-term need for cash that banks won't provide. They say the loan interest is better for a consumer than losing utility services or bouncing checks.

One of the key compromises between industry and legislators who legalized payday loan lending in 2002 is that individuals can't extend a loan they can't afford to pay off. By paying more fees and interest, these so-called rollovers compound interest on the payday cash loan.

"But of course, they allow back-to-back loans, which is the same thing," said Jean Ann Fox, a York resident who is director of consumer protection at the Consumer Federation of America.

Oder's 2006 bill would have banned people from having more than one loan out at a time. It would have forced payday lenders to use a state-maintained database, as well. A close eye on the cash advance business was the main goal a year ago.

Lenders, of course, didn't like that. The quick payday loan industry has poured hundreds of thousands of dollars in donations to legislators and hired lobbyists over the last few years in Richmond. Through the pressure they applied to other lawmakers, Oder was forced to water down the bill substantially.

To get the bill voted on, Oder amended it in a way that would make consumers promise they are not taking out one loan to pay off another. However, the database requirement was removed. Nothing currently prevents someone from taking out faxless payday loans from multiple companies.

By the time 2006's bill reached the House of Delegates for a vote, Oder conferred with other payday opponents and pulled his own legislation. They agreed that the less harsh bill would have made it impossible to return in 2007 and take more substantial action, said Oder.

"Without a database, it's not going to be effective," said Oder.

In the 2007 version of the bill, Oder included a provision that would allow people to have only three online payday loans out at a time. This means individuals could perpetually take one loan out to pay off another.

"That is a recipe for a debt trap," said Fox. "That is not a consumer protection."

The Oder bill also says that after someone pays off a payday loan, they must wait at least two days before they can get another one. He hopes the inconvenience of the waiting period, coupled with being allowed to have only three at a time, will help the problem.

"Trying to prevent the spiral of debt is the most important thing we can do," said Oder.

Almost 91,000 Virginians took out at least 13 loans last year from a single lender. State regulators don't know how many people took out faxless online payday loans from multiple companies. Fox said there's so many lenders now, it's hard to make a trip to one inconvenient.

"They're on every corner in Newport News and outside the gate of every military base in the area," said Fox.

Del. Kenneth Alexander, D-Norfolk, said he knows Oder's heart is in the right place, but doesn't think opponents of payday lending will support a bill that allows multiple loans at once. The huge interest rates must also be addressed before anything else, said Alexander, who believes that some meaningful changes will be made in 2007.

"There are going to be more consumer protection clauses placed in bills," said Alexander.

Oder argues that since some states allow up to $1,500 per no credit check payday loan and Virginia allows only $500, Virginians already have some protection from incurring huge debts.

The 2007 bill retains one key new pro-consumer feature from the 2006 bill. A lender must give the customer two months after a loan is in default to enter into a repayment plan before the payday company can sue them.

Alexander said he might introduce a bill to ban payday loan lending completely, which legislators tell him privately that they oppose because of constituent complaints. He disagrees with Oder's philosophy of trying to do what is politically possible.

"You've got to do what is principally right," said Alexander. "I don't care what is politically right."

This entry was posted on Sunday, August 13th, 2006 at 12:10 pm and is filed under Virginia.