One of the nation’s biggest payday lenders will pay the state $85,000 to settle allegations it violated consumer-finance law in 119 instances. Regulators from the State Corporation Commission found the violations during an audit of Advance America Inc. last year. Payday loans are very short-term loans—typically for about two weeks or until the borrower’s next paycheck. Although the payback amount can range from $15 to $30 per $100 borrowed, that’s the equivalent of an annual interest rate of as much as 400 percent.

Consumer advocates yesterday praised a new program launched by Virginia to help state workers get emergency, short-term loans without having to turn to payday lenders. Citing the dangers of “predatory” lending and the worst economic recession since the 1930s, Gov. Timothy M. Kaine yesterday announced that employees will be able borrow up to $500 twice a year to help meet financial needs.

Virginia is considering putting the brakes on the repo man, but there’s disagreement on how to do it. A General Assembly panel yesterday opened hearings on a possible clampdown on car-title loans, under which borrowers—often with poor credit histories—use their cars as collateral and lose them if they fail to repay. The industry, which typically charges 300 percent to 350 percent in annual interest, operates in Virginia with few restrictions.

New restrictions that cut down on the number of payday loans that 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.

A big payday lender is quitting Virginia because of the tough economy and new restrictions on high-cost instant loans, but others are finding new—and potentially controversial—ways to keep open their money stores. Recession and additional regulation have shrunk the ranks of cash parlors in Virginia more than 19 percent since December. There now are 630 payday-lending outlets—down from 786, according to the State Corporation Commission.

Terry McAuliffe is starting a pile-on by Democratic gubernatorial candidates of the high-interest instant-loan industry, proposing the state kick out payday lenders. “We need to shut them all down; they only shove people into worse economic conditions,“ McAuliffe said yesterday. McAuliffe’s two foes in the June 9 primary echoed his proposal, though both Sen. R. Creigh Deeds of Bath County and former Del. Brian J. Moran of Alexandria voted in 2002 to open Virginia to payday lenders.

Virginia’s modest clampdown on payday lending may claim its first big casualty. Mason, Ohio-based Check ‘n Go yesterday said that it could scale back or pull out of Virginia altogether because of pending restrictions and the recession. Check ‘n Go operates 68 money stores, employing about 100 people. The company has about 12 outlets in the Richmond area.

Gov. Timothy M. Kaine yesterday did little to cheer people who want to smoke in restaurants, people who want to take concealed weapons into bars, or payday lenders. During his monthly call-in radio show on WRVA in Richmond, the governor reiterated his intention to sign recently passed legislation to impose a statewide ban on smoking in public restaurants that do not have separately ventilated areas for those wishing to light up.

Senate Majority Leader Richard L. Saslaw, D-Fairfax, says it wasn’t a message. It looked like one. New restrictions on payday lending cleared the Virginia Senate on a vote of 39-0 yesterday. They would prevent lenders from skirting a 2008 clampdown on high-cost, instant loans. Once a forceful ally of the lenders, Saslaw proposed additional rules for money stores because he is angry over their perceived end-run on last year’s legislation, which took effect only 30 days ago.

Virginians are facing severe economic difficulties, with financial institutions restricting lending and access to credit. In addition, unemployment rates are rising, resulting in more families transitioning from two-income to one-income households, and hourly jobs and overtime payments are being scaled back significantly. Amid this economic backdrop, our company, Advance America, recently began offering a new credit product to serve our customers in Virginia—in addition to the modified payday advance product introduced this year.

Out of view, there was a reunion of sorts in the General Assembly Building the other day. Lobbyists for payday lenders sat down to ponder a problem of the industry’s own making: a furor that is turning the lenders’ best friends in the legislature into their worst enemies. High-cost, instant-loan companies enraged the wrong people by seemingly worming around a clampdown fashioned last year that could have been tougher were it not for Tom, Dick and Kenny. That would be Senators Norment, Saslaw and Stolle.

A powerful ally of payday lenders is furious over the industry’s perceived end-run on new restrictions on high-cost instant loans and is vowing to block it. Senate Majority Leader Richard L. Saslaw, D-Fairfax, said he is writing legislation to prohibit lenders from offering so-called open-ended loans with potentially unlimited fees. Saslaw’s bill—and a similar measure by Del. G. Glenn Oder, R-Newport News, an industry foe—would restrict lenders to payday loans, which a law that took effect Jan. 1 seeks to control through complex repayment rules and higher fees.

The financial crisis has confirmed the wisdom of the Virginia Supreme Court in 1941, that unfettered free markets with lax oversight, inadequate regulation, and lack of legislative constraints will result in widespread abuses.

A clampdown on high-cost instant loans takes effect today, but lenders already are finding ways around it—and legislators are steamed.