Payday Loan Times

A broad coalition representing the poor, elderly, children, labor, business and minorities wants to get rid of payday advance lending in Virginia.

On Tuesday, the House of Delegates Commerce and Labor Committee will consider a bill to repeal the state’s 2002 payday-lending law. The coalition supports the bill, introduced by Del. John M. O’Bannon III, R-Henrico.

If the bill succeeds, providers of payday cash loans would face the same 36 percent interest cap that applies to other makers of small loans.

Payday lenders, who charge up to 780 percent annual interest, have been generous with their campaign contributions and have hired some top lobbyists to help fight the bill.

The lenders argue that consumers want and need their services, pointing to 445,000 Virginians who took out 3,372,000 pay day loans last year.

Payday loan critics: Opponents of payday lending say the loans are designed to pull financially struggling, lower-income borrowers into a credit trap from which it is hard to escape. Borrowers take out loans, one after another, to pay off previous loans, they say.

A report released last week from the North Carolina-based Center for Responsible Lending shows 90 percent of revenue of payday-lenders comes from borrowers who can’t pay their loans when due. Most loans go to people who have 12 or more loans per year, said Jean Ann Fox of the Consumer Federation of America.

The report shows 756 payday lending stores made nearly $1.2 billion in loans in Virginia last year, for which borrowers paid $177.3 million in loan fees. The typical U.S. borrower pays back $793 for a $325 payday loan.

Yet the Community Financial Services Association of America, a payday-lending industry group, attacked last week’s report, calling it a rehash of flawed statistics and not a serious discussion of consumer-lending needs.

Besides, the group says and The Times Dispatch reports, consumers already pay millions of dollars in interest and fees, including late fees, to banks and credit unions yearly.

“Consumers are very capable of making decisions without self-appointed guardians . . . who profess to represent consumers’ interest,” said association President Darrin Andersen. He added that payday loans online are often the best option for borrowers.

Committee Chairman Del. Harvey B. Morgan, R-Middlesex, believes the bill has a good chance of passing after failing earlier this year.

If the bill doesn’t pass, the legislature will look for other ways - such as setting up a database to track loans or requiring credit checks of borrowers - to address concerns about payday advance loan lending, Morgan said.

The Virginia Partnership to Encourage Responsible Lending said a previous bill that proposed amending the payday lending law to add a database and other protections fell far short of what is needed to protect borrowers.

Morgan, who sponsored the state’s payday lending law, said he bears the blame for fast cash advance lending in Virginia.

“I greatly regret that I sponsored that bill,” he said last week.

Lawmakers passed Morgan’s bill in an effort to get control over payday lending. At the time, lenders were already operating unregulated in Virginia under the charters of out-of-state banks.

Since then, federal bank regulators have stopped banks from “lending” their charters to payday companies.

Payday lending has been a hot issue in states from California to South Carolina because of growing concerns about the lending practice, Fox said. Thirty-nine states and the District of Columbia allow payday lending. No additional states have enacted legislation this year allowing it.

This fall, Congress limited the interest that providers of cash loans can charge members of the armed services and their spouses to 36 percent. Military commanders complained that lenders, which have clustered around U.S. military bases, including those at Hampton Roads, preyed on the military.

Payday loan harm: The people most harmed by payday lending are not the poorest but those on the second-rung of the economic ladder, those struggling to make ends meet but who have an income and a bank account, Fox said.

A typical bad credit payday loan customer is likely to be a woman making less than $30,000 per year, she said.

Allan Anderson, of the Grace Alliance of Church and Community Efforts in Greene County, a coalition of 17 churches whose mission is to help low-income people in financial trouble, said payday lenders make it harder for groups to help people.

For people to work their way out of financial trouble, they have to prioritize their finances. But once someone takes out a cash advance loan, the only priority left is to pay off the loan, Anderson said.