Sunday, September 24, 2006

Faith-Based Communities in Virginia Find Problems with Payday Loans, Cash Advances

By J.J. Cameron
Payday Loan Writer

"He who increases his wealth by excessive interest gathers it for one who has pity on the poor."
– Proverbs 28:8

So begins a recent article from Richmond.com. It states that predatory lending is not new. During biblical times, abusive lending practices were addressed by instituting strict standards, including banning the charge of interest to the poor (Exodus 22:25). Likewise, in the story of Zaccheaus (Luke 19:8-9), Jesus commended him for promising to repay the excessive fees he had exacted from the oppressed.

Today, no fax cash loan practices exploit low- to moderate-income people by charging as much as upward of 780 percent on a one-week payday loan. This is both a legal issue and a moral issue. Therefore, all persons of faith are called to express their values in conversations about the predatory lending problem in Virginia.

Payday Loan Sign

Anita Monti, a payday loan borrower, tells this story:

"I felt like I was in a stranglehold each payday. After a while I thought, 'I'm never going to get off this merry-go-round.' During this time, I got a promotion and a raise, but I never saw any of that money. It all went to pay the fees on my loan."

She has to turn to her church for assistance.

The Bureau of Financial Institutions reports that in 2005, more than 3.3 million regular and online cash loans were made to more than 445,000 borrowers from 756 payday loan locations in Virginia. In that year, the dollar amount extended to payday borrowers crested well above the $1 billion mark in Virginia.

All of these figures are up exponentially since the Virginia General Assembly passed a bill authorizing payday advance lending in 2002. This legislation prohibits payday lenders from renewing, refinancing, or extending a payday loan. It also prohibits lenders from making more than one loan at a time to a borrower.

But it hasn't accomplished much. Consumers can still go to various borrowers for multiple fast payday loans - and they've been doing just that.

Therefore, Delegate John O'Bannon has proposed repealing the Payday Loan Act of 2002. This would halt payday lenders' ability to charge exorbitant interest rates and bring them under the current Virginia statute that limits small loan APRs to 36 percent. The bill (HB 619) was carried over last session but is expected to return in 2007.

Contrary to what the cash advance industry claims, this legislation will have no effect on payday lenders that seek to provide an occasional short-term solution to a borrower's debt crisis. It will only affect those payday lenders that seek to trap desperate borrowers into multiple loans. It's a start.

Continuing to ignore the growing problems fostered by payday loans is a disservice to members of our communities who are victims of the industry and can't see the light at the end of the debt tunnel. Compassion is a central value of American faith communities; we must leverage this compassion to encourage the same in our legislature.

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