Payday Loan Times

When you are looking at the difference between legislation that would ban your industry or merely reform it, reform starts to look pretty good.

That’s the position providers of bad credit cash loans find themselves in as nearly a dozen measures wend their way through the General Assembly that range from an outright ban of the ubiquitous storefront lenders to serious reform.

Payday cash advance lenders have flourished in Virginia since 2002 when the state uncapped regulations on the industry allowing it to charge interest rates of as much as 400 percent on an annual basis.

There is a need for such lenders, as figures provided by The Washington Post show. According to the Post, more than 445,000 Virginians took out more than 3.3 million payday loans in 2005, totaling nearly $1.2 billion. The average customer takes out about seven loans a year, state figures show. Loans cannot exceed $500.Figures also show that those seven - or more - no faxing payday loans a year can often end up creating a financial trap for the borrower. The only way out of that trap is to arrange for another loan. And the borrower - often people who live from paycheck to paycheck - becomes entwined in a cycle of debt from which he cannot escape.

You know there’s something wrong with a state law when the sponsor of the bill that created it asks for it to be repealed.

Del. Harvey Morgan, R-Gloucester, opened the door for easy payday loan lenders in Virginia with legislation in 2002 that exempted them from the 36 percent cap on interest rates. He says now he didn’t think it was a good idea.

Repealing the law would not shut the payday lenders down. But they would face the same 36 percent cap as banks and other financial institutions.

Del. John O’Bannon III, R-Henrico, joined Morgan and others at a news conference the other day on fast payday advance lending, saying:

“It’s time for us to go ahead and accept the fact that this was a failed experiment and that there are more alternatives for this set of folks. At the end of the day I think the time has come, the experiment has been done, it has failed and it is time to act.”

Payday lenders say capping the interest rate on their loans at 36 percent on an annualized basis would force them to shut their doors. Too bad. That rate would effectively mean they could charge only $1.38 per $100 loan.

That’s somewhat less than the usurious $15 they get in interest for a $100 personal loan for two weeks.

Sen. Richard Saslaw, D-Fairfax, has offered a bill that would reform the industry without capping its interest rates at 36 percent. His measure, which has been approved by the Senate Commerce and Labor Committee, would help people from falling into more debt by limiting the number of outstanding loans to three per person.

It would also forbid a bad credit cash loan lender from starting legal proceedings until 60 days after the date of default. Further, the bill would require creation of a database among all payday lenders to track borrowing activity.

To read the rest of this Lynchburg News and Advance story, click here.