West Virginia Payday Loan Fight: It’s All Over
By Paul RizzoPayday Loan Writer
Consumer advocates don’t plan to lobby lawmakers this session for a bill targeting personal cash loan lenders. They say they don’t need to, thanks to a recent decision by federal regulators.
Payday lending foes are heralding a standard adopted by the Federal Deposit Insurance Corporation, discouraging such lending to anyone who has had such a loan outstanding in three out of the 12 previous months.
“When that happened, they left West Virginia,” Dave McMahon, a lobbyist and lawyer for low-income consumers told The Herald-Dispatch.
A lobbyist for payday lenders discounted the FDIC standard cited by McMahon, but agreed that the topic would not arise this session.
“The industry is devoting more attention and effort to other jurisdictions,” lobbyist Phil Reale said.
But McMahon said the death of the issue, at least for now, suggests the industry had relied on repeat customers as consumer advocates have alleged. He cited national statistics estimating that these borrowers provide 60 percent of online payday advance lending revenue, though they account for only 40 percent of all customers.
“It really was not about short-term, occasional loans,” McMahon said. “What they really make their money on is when people get trapped into a cycle of debt to these people and they can’t get out.”
Payday lenders offer cash advances to people who surrender postdated checks. The lender holds the check until the borrower’s next payday, when the loan is either paid off or the lender cashes the check.
The fees charged for this short-term loan exceed the 38 percent interest rate cap set by West Virginia law. Payday lenders had lobbied the Legislature in recent years to license and regulate these kinds of loans. But one lender, First American Cash Advance, operated in the state by aligning itself with federally chartered, out-of-state banks.
McMahon and such groups as AARP had opposed instant payday loan lending legislation, and proposed measures targeting companies like First American. The FDIC standard has changed the playing field, McMahon said Wednesday.
“They quit using those banks and had to leave,” McMahon said. “They’re gone, so consumers don’t expect to push that bill this session.”
None of the West Virginia phone listings for First American, which once had more than a dozen locations statewide, was in service Wednesday. A toll-free number for the payday loan company was also out of service, and an e-mail request for comment was not immediately answered.
Steven Schlein, a spokesman for the industry’s Community Financial Services Association of America, said he was unaware of any activity by his group in West Virginia. Schlein noted that the state is not among the 37 that allow and regulate payday lending.
Reale said the absence of a state law regulating such lending “may be a disservice to the consumers in the state who may turn to the Internet and other less-secure sources to get short-term financing.”
Last year, West Virginia Attorney General Darrell McGraw convinced 18 Internet-based payday cash loan lenders to quit doing business in the state last year and sued to stop 14 others as well.
