Payday lenders elude reforms
Published: January 1, 2009
A clampdown on high-cost instant loans takes effect today, but lenders already are finding ways around it—and legislators are steamed. Despite new restrictions by the 2008 General Assembly, some payday lenders have recently won approval from Virginia’s business watchdog agency, the State Corporation Commission, to offer loans with potentially unlimited fees.
I no longer believe they are people of good will trying to work with the legislature,Sen. A. Donald McEachin, D-Henrico, an industry critic, said of maneuvering by lenders. It shows a great
deal of bad faith on their part.
McEachin said he expects legislation further restricting lenders in the General Assembly session that begins Jan. 14. The stakes this year may be higher for lenders and politicians—many of
whom believed the issue had been settled in 2008—because Virginians in November choose a new governor and House of Delegates.
Jamie Fulmer, spokesman for the nation
s largest payday lender, Advance America, said unregulated, open-end loans are necessary to keep fast cash stores profitable and to meet the needs of
some borrowers.
In these times, when credit is more difficult, we need to provide as many options as possible,Fulmer said.
It sees to me such an obvious slap in the face of legislators, James W. Jay Speer of the Virginia Poverty Law Center said of the industry latest loan products. In joining the national backlash against payday loans—often depicted as a debt trap for the poor and uneducated—Virginia is limiting borrowers to one loan at a time and allowing most people 10 loans per year.
The restrictions include a complex system for paying off loans. It is designed to prevent borrowers from becoming mired in debt.
The SCC has approved requests by Advance America and 10 other payday lenders to issue open-end loans for which there are virtually no limits on interest and payment terms. Seven other
companies want to offer such loans.
Also available: Internet loans by Advance America and Check Go, which last year paid $100,000 over violations of the old payday-lending laws.
During the 2008 legislative fight, in which lenders spent more than $4 million on lobbying, advertising and campaign contributions, the industry’s lead lobbyist, Reginald N. Jones, warned
that borrowers would turn to unregulated Internet loans if Virginia drove off money stores.
The new law is an alternative to a 36-percent interest cap favored by industry foes. Lenders argued that such limits would reduce profits to pennies on the dollar, putting them out of business
and denying credit to people who cannot qualify for traditional loans.
The new law actually increases the cost of loans.
Fulmer said the new law, for borrowers, is difficult to understand. And that, he said, could imperil profits. The key feature is that it’s far more complicated, Fulmer said. Most new laws are effective July 1, but enactment of the payday-lending statute was delayed until today to give the SCC time to set up a computer database through which the agency and loan parlors will track borrowers.
Three other laws take effect today. They strengthen reporting requirements for political-action committees, oversee commercial dog breeders and mandate local governments and school boards to publish their budgets.
Contact Jeff E. Schapiro at (804) 649-6814 or
.
Reader Reactions
Real change starts with the people. Rate caps and bailouts will do nothing for the economy until people learn to manage their finances responsibly. Otherwise, you can free up credit, and cap interest rates, but people will still take out loans they can’t afford.
How come most of these places are put off limits by the military? Even the federal government knows that they are preying on people who have little or know choice. Sounds like Loan sharking to me. There is NO REASON a place needs to charge over 36% interest just to stay in business. If that is so then they should be allowed to go out of business. Close them now before too many others get into there clutches.
The problem is you give these pay-day lenders an inch and they take a mile. Since they are circumventing the law to get around the 2008 legislation, it’s time to put them out of business for good. They complain that they can’t stay in business unless they increase the rate and/or increase the number of loans granted. So be it; adjoining states have outlawed them all together, so who cares if VA closes them down, too? Obviously, they won’t regulate themselves, so the state should take matters into their own hands. Sound like the mortgage sharks? Just another form of bilking people out of money and causing permanent financial ruin.
supply demand. if people have the supply of money that you have, you should pay whatever they want. do it, or don’t. it is your choice. I am sure the 1 lb of flesh from the merchant of venice would be a fair deal.
I would challenge Lance62’s comment that Payday Lending is “the neo conservative right wing version of Capitalism run amok…“ If anything, the rhetoric that this industry uses is more along the lines of the liberal do-gooder philosophy. There is nothing conservative, neo or otherwise, that would support giving loans to people who can’t afford to pay them back.
To anonymous at 9:02 am: the state has tried regulation of this industry and I think that Schapiro’s point is that they’re creative enough to have found a way around it…of course, it doesn’t help that the State Corporation Commission doesn’t know how to read the intent of a a regulatory law. Enough of this; the GA needs to put these corrupt lenders out of business.
Since credit card companies are now subject to regulation, the Payday Loan businesses AND Title Loan companies also need to be regulated. How the heck can these companies get away with a 75% interest rate?? In my opinion, they’re loan sharks that prey on people who are struggling to survive as it is.
My ex got caught up in this mess. He would get a $500 loan for 1 week and pay $50 in interest. Now if you’re in a situation where you need to borrow from one of these places b/c you don’t have money how can you afford to payout $50 a week??
I personally think they should close down all of these businesses or at a minimum cap the interest rates to something more reasonable. The only service I see them offering is making the poor poorer.
Payday lending. Does it have a place at all with outrageous fees and interest rates that are unbelievable?
Is it the neo conservative right wing version of Capitalism run amok policing itself or does it meet a need? I don’t know all the answers but any industry fighting an interest rate cap of 36% to potentially be placed on the very least able to afford such at thing strikes me as vulnerable, without principle other than one: greedy beyond belief.
It doesn’t matter to me whether it’s market forces that kill it or the legislature but it seems somebody ought to, the whole darned industry.
Lance Pearson
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