Thursday, December 28, 2006

The House of Delegates recently killed legislation aimed at banning payday loan lending, the controversial storefront industry that makes high-interest short-term loans to thousands of Virginians.

But the debate is far from over, The Daily Press reports.

Lawmakers have been bombarded by complaints from consumer activists, pastors and former customers who said the business preyed on the working poor by promising quick money at interest rates that made it difficult or impossible to repay.

Tighter regulations will be considered during the 2007 General Assembly session. One lawmaker has resubmitted the bill that would effectively ban payday loans for good, hoping for a different verdict this time around.

“I think that they are predatory lenders that should be put out of business,” said Del. Jennifer McClellan, D-Richmond.

In 2002, the General Assembly decided to regulate providers of payday advance loans because the firms had moved into Virginia while contracting with out-of-state banks. The arrangement allowed them to charge higher interest rates than state law normally allowed for small lenders.

McClellan’s bill isn’t technically a ban.

It would repeal the 2002 regulations and require payday lenders to cap interest rates at 36 percent, the same as for other small cash loan lenders. Payday industry representatives said that would effectively drive them out of business. The average annual rate on payday loans in Virginia in 2004 was 373 percent.

According to state figures, more than 445,000 Virginians took out more than 3.3 million regular and/or faxless payday loans in 2005. The amount nearly topped $1.2 billion. The average customer takes out about seven loans a year, according to one estimate.

But formal complaints are relatively rare: 56 in 2005 and 33 through mid-August of this year.

Industry representatives said they were fulfilling a legitimate demand: Their customers have jobs and bank accounts and might need a short-term loan to pay a surprise car-repair bill or get through a heath crisis.

Other customers work in commission-based sales jobs and might need cash for a temporary dry spell.

If payday cash loans go away, consumers will max out their credit cards, risk bouncing a check or turn to unregulated out-of-state lenders, said an executive of Advance America, the nation’s largest provider of payday loans.

“If you eliminate the product, it does absolutely nothing to eliminate the need for the product,” said Jamie Fulmer, director of investor relations.

If the General Assembly does not approve a ban, it has alternatives to consider.

Del. G. Glenn Oder, R-Newport News, has filed legislation to forbid supposedly cheap payday loan lenders from issuing loans to people who have three or more outstanding loans or who have paid off a loan in the previous 48 hours. It would create a database of customers to allow lenders to track loan activity in real time.

Del. R. Lee Ware Jr., R-Powhatan, is formulating a bill, but he wants to see a “cooling-off period” so customers can’t take out several loans on the same day. He also favors a database to keep track of customers.

Abolishing the business will do little to solve the problem, Ware said.

“The practice doesn’t disappear,” he said. “It just takes a different form.”

This entry was posted on Thursday, December 28th, 2006 at 4:02 pm and is filed under Virginia.