Payday lenders elude reforms

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 fastcash 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's 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 'n 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 .