Wednesday, August 1, 2007

The following is an editorial from The Roanoke Times…

Pretend for a moment that - like most Virginians - you make enough to make ends meet, but haven’t accumulated much in the way of savings or assets.

Your car breaks down. You need $300 to fix it so you can get to work. You’re not comfortable borrowing from friends or family. You don’t want to max out your credit card, bounce a check or pawn personal items. What do you do?

The industry of payday cash advances exists because it fills a vacuum that banks created when they stopped offering low-dollar, short-term loans. They instead found bounced-check and nonsufficient funds “protection” fees more profitable.

Recent studies debunk the myth that payday loans are “predatory,” and underscore the fact that - before restricting or eliminating such short-term credit options - public officials should better understand the consumer demand for such products and the unintended consequences any such restrictions might create.

Indeed, while critics - including recent Roanoke Times guest columnists - have rushed to label payday loan lending as “predatory” without ever having defined what “predatory” means, a January 2007 study by the Federal Reserve Bank of New York found that payday loans were not only not predatory, but that - by increasing the supply of credit to an underserved market - they actually enhance the welfare of the households they serve.

Another study found that further regulation of no fax payday loan lending has the adverse and unintended consequence of reducing credit options for those who may have few alternatives, and that policymakers should encourage competition in the small loan market, as competition controls prices.

Payday loans are a sensible choice for many facing personal emergencies and more onerous fees such as those associated with bounced checks and late bill payments.

Just as a taxicab is not the right choice for a cross-country trip, but a good choice for a ride across town, a cash advance loan can be the best choice for someone short of cash a week or two before payday.

While attacking payday advances for carrying high annualized percentage rates, industry critics fail to mention that no payday loan customer would ever experience such APRs. To do so, a payday loan customer would have to renew his or her loan every two weeks for a full year, an impossible feat that is illegal in Virginia and all of the 37 other states with responsible payday lending legislation.

In fact, Virginia’s payday lending laws already include some of the strongest consumer protections in the country. Virginia law protects consumers from creating a “cycle of debt” and from experiencing the kinds of annualized percentage rates referenced by industry critics. These laws include limits on loan amounts, renewals and associated fees.

These are the kinds of strong consumer protections the industry of fast payday loans consistently supports.

While the vast majority of payday loan customers pay their loans off without difficulty, the industry provides a solution for the small minority of customers whose overall financial situation precludes them from meeting the terms of their loans.

Earlier this year, members of the payday lending industry’s largest trade association - the Community Financial Services Association - launched an Extended Payment Plan granting any customer more time to pay off their check cash advance at no additional cost.

By providing a safety valve for the small percentage of customers who misuse payday loans, extended payment plans will help that group avoid further financial difficulty or the “cycle-of-debt” so often misattributed to payday lending.

Banning the industry - as the 36 percent annualized rate would do - would deny Virginia consumers the right to make their own choices, limit their credit options and force many to risky and more costly options such as unregulated off-shore payday loan online lenders and bouncing checks.

Policymakers in 38 states, including Virginia, have debated the issue and passed laws containing strong consumer protections - recognizing that eliminating a choice does not eliminate the need for short-term credit.

Evidence shows payday loan customers are satisfied with their payday loan experience, appreciate having this credit option available and fully understand and accept the associated fees.

Let’s give Virginia consumers access to a variety of regulated credit options and trust them to make financial decisions based on what’s best for them and their families.

- Kevin Doyle, Virginia regional manager for Quik Cash

This entry was posted on Wednesday, August 1st, 2007 at 5:38 am and is filed under Virginia.