Storefront Payday Advance, Cash Loan Lenders on Way Out in Virginia?
By Paul RizzoPayday Loan Writer
As members of the House of Delegates concede that payday loan lending institutions are a blight on the state’s financial landscape, the storefront lenders may be on the way out.
The News and Advance states a better alternative to the lenders, which make loans with annual interest rates that push 390 percent, would be credit counseling sessions offered by a number of agencies in the Lynchburg area, including the Alliance for Families and Children on Memorial Avenue.
The House Commerce and Labor Committee recently heard consumer advocates support a legislative proposal that would put a 36 percent interest rate cap on the high-interest instant cash loans - a rule that applies to other lenders in Virginia.
The proposal offered by Del. John O’Bannon, R-Henrico, would effectively ban the storefront businesses that have cropped up in every community around the state because the interest rate cap would be too low for them to survive. The measure would repeal the 2002 law that exempts payday lenders from the 36 percent cap.
The payday loan industry response: Representatives of the cash advance payday loan industry said the measure would force them out of business and would deny cash-strapped borrowers a convenient source of credit.
They didn’t mention, of course, that the lenders prey on the poor and vulnerable by offering quick money at outrageous interest rates. They didn’t mention that they exploit people who can’t manage their own finances and trap them in a vicious spiral of debt.
Critics of the practice argued that borrowers often get trapped in a cycle of debt as they repeatedly renew their faxless payday loans or borrow from one payday lender to pay off another.
“Repeat borrowing is the lifeblood of the payday loan industry,” Jean Ann Fox, protection director for the Consumer Federation of America, told the House committee.
Other states have outlawed quick payday loan lending, including North Carolina, West Virginia and Maryland. A defense authorization bill that has passed the U.S. House of Representatives and is pending in the Senate would set a 36 percent cap on payday loans to members of the military and their families.
“If we’re going to have a 36 percent cap for the military, why isn’t that fair for all Virginians?” asked Del. Johnny Joannou, D-Portsmouth. He called the triple-digit interest rates “unconscionable.”
He’s right.
Del. Harvey Morgan, R-Middlesex, chaired the hearing and sponsored the legislation in 2002 that paved the way for the regular and online payday advance lenders to sprout like obnoxious weeds across the state. He said he was reluctant to do so at the time.
After the recent hearing, he said he wished he had that vote back.
“I feel like I created a monster,” he said.
