Short-term payday loans down 84 percent in Va.

New laws that cut down on the number of payday loans borrowers can get have drastically reduced the number of the short-term, high-interest loans issued in Virginia.

Last year, Virginia's payday lenders made nearly 3.4 million payday loans, or about 281,000 each month. Through the end of May, lenders had issued 226,807 loans, an average of 45,000 per month -- an 84 percent decline, according to the Bureau of Financial Institutions.

That puts Virginia on pace to issue fewer than 600,000 payday loans for the first time since the lenders were authorized to do business in the state in 2002.

The bureau derived the information from a database that was required as part of reforms that passed the General Assembly in 2008. The reforms came after years of infighting among legislators, who argued that payday lenders prey on the vulnerable, and those who didn't want to take away the fast-cash option for people who didn't qualify for traditional credit.

Legislators limited borrowers to one payday loan at a time and doubled the amount of time borrowers had to repay the loans, among other changes.

Before then, payday lenders charged $15 per $100 loaned, and it was due on the borrower's next payday. The short term of the loan pushed interest rates into the triple digits, and borrowers often took out several loans at one time or consistently rolled over their original loan, sinking deeper into debt.

The changes drove many lenders out of the state, including Mason, Ohio-based Check 'n Go, which closed its 68 Virginia stores earlier this year.

As of June 16, there were 526 payday loan stores in Virginia, down from a high of 832 in 2007.

"It's definitely good news and bad news," said Jay Speer, executive director of the Virginia Poverty Law Center. "The good news is that there are less payday loans. The bad news is that they just shifted to car title lending."

Before the new law took effect in January, the majority of the state's payday lenders began offering other high-interest loans, like lines of credit or car title loans, where borrowers hand over the title to their vehicle to secure a loan for up to half the car's value. If they fall behind, the lender can take the car.

Those types of loans fall under Virginia's open-end credit law, which allows lenders to charge whatever they want as long as they don't charge anything for the first 25 days. While the bureau polices payday lenders, open-end loans are unregulated. Open-end loans allow for a revolving line of credit similar to a credit card.

Upset that payday lenders sidestepped the new law, legislators this winter passed a law banning those with payday lending licenses from offering unsecured open-end loans. They can offer car title loans.

Speer and others who fought for tougher regulations for payday loans asked legislators to cap the interest rate on open-end loans at 36 percent, but a bill to do so died this winter. A group of lawmakers is scheduled to meet later this month to study the issue.

"I think the threat of us doing more in 2010 is very real," said Del. Glen Oder, R-Newport News, who has fought against payday lenders.

Advance America, the nation's largest payday lender, began offering car title loans only in Virginia this spring after it saw that customers didn't like the changes in the payday loans but still needed short-term credit, said Jamie Fulmer, spokesman for the company, which has about 150 stores in Virginia.

Fulmer said he hoped the legislature would revisit the changes it made because it was obvious customers liked the traditional payday loan. Last year alone, more than 436,000 Virginians took out a payday loan.

"I do know that in today's environment, now more than ever consumers need as many options to chose from when they find themselves in this situation," he said.

Sheila Woods, a 52-year-old disabled Army veteran from Newport News, took out some payday loans last year to help pay her bills. In January, the lender directed her to a line of credit for $750.

Since then, Woods has paid more than $820 and her June statement, obtained by The Associated Press, shows she still owes $715.47 because of the sky-high finance charges and fees.

Woods said she preferred the original payday loan because she always knew what she would owe, although she admitted they can be addictive. She said she's gotten away from the dangerous "vicious cycle" of relying on payday or open-end loans.

"It's almost sort of like a drug," Woods said. "You need a fix in order to pay your bills."