I received the following via email tonight:
On Tuesday, December 5th, the Virginia House Commerce and Labor Committee will vote on HB 619, a bill sponsored by Delegate John O’Bannon that would repeal the Payday Loan Act of 2002. It’s important that this bill be approved and sent to the House floor when the Legislature convenes in 2007.
Background
The Payday Loan Act of 2002 granted exemption from the Consumer Finance Act to payday lenders, lifting the 36% APR cap on loans made by these lenders. The result has been a proliferation of payday lending in Virginia. The 2002 Act has enabled payday lenders to impose a triple-digit APR (often more than 300%, but up to 780% is now legal).
In 2005, more than 3,372,000 payday loans were made by payday lender licensees in Virginia. The total dollar amount of these loans was $1,197,105,629. The number of individuals to whom payday loans were made was 445,891. Of these, 90,859 received 13 loans or more (within that year alone) from a single lender — and this figure does not reflect the number of borrowers who got loans from more than one lender).
Repealing the Payday Loan Act of 2002 does not translate to lack of support for home-grown businesses; it would only require that they operate under the same regulations as all other lenders. In addition, more than 50% of the payday loan businesses in Virginia are owned by out-of-state companies. As a consequence, over $167 million in fees flowed out of Virginia in 2005 alone.
Research shows that the payday lending business model is designed to keep borrowers in debt, not to provide one-time assistance during a time of financial need. To secure a loan, borrowers give a payday lender a personal check that the lender does not attempt to redeem (as a rule, there are insufficient funds in the borrower’s checking account — that’s why he/she is seeking a loan). In return the borrower receives cash minus the lender’s fees, which are $15 for every $100 borrowed. No credit check is done, and the loan is not related in any way to the borrower’s ability to repay.
A payday loan only postpones a financial crisis for two weeks, and few borrowers (just 1%) are able to repay the loans within that period. Instead they become trapped in a cycle of debt driven by repeated loans and fees. Each additional loan is used to pay off previous ones made by the lender.
Repealing the Payday Loan Act of 2002
The Virginia Partnership to Encourage Responsible Lending (VaPERL) is a coalition of organizations working to repeal this act through passage of HB 619.
Members of the coalition include such Virginia organizations as the AARP, Virginia Poverty Law Center, Virginia Interfaith Center for Public Policy, Richmond Better Business Bureau, Virginia Organizing Project, Voices for Virginia’s Children, Legal Aid Justice Center, and the Virginia Association of Area Agencies on Aging.
Furthermore, when the House Commerce and Labor Committee held a hearing on HB 619 on October 3, 2006, speakers urging the Committee to support this bill included representatives of the Consumer Federation of America, the NAACP, the National Military Family Association, and the Joint Leadership Council of Veterans Service Organizations.
What You Can Do
Sign a letter. On the internet, go to Virginiafairloans.org (Virginia Fair Loans, A Partnership to Encourage Responsible Lending). Under “Action Alerts,” click “Repeal the Payday Lending Act.” Enter your name and contact info in the appropriate spaces to automatically send a letter (posted there) to your State Delegate and State Senator — with copies to Del. Harry Morgan and Sen. Harry Wampler (Chairs, respectively, of the House and Senate Commerce and Labor Committees).
Contact individual members of the House Commerce and Labor Committee in advance of their vote on Tuesday, December 5th. (Sending them a communication or calling them by November 30th would be a good idea.)
Note that Congress this fall enacted a 36% cap on interest rates charged to active duty military and their families. This law was aimed squarely at payday lenders. The repeal of the Payday Loan Act of 2002 goes a long way toward providing other Virginia consumers protection from predatory lending practices
Contact the members of the committee (click on name for email):
- Harvey B. Morgan, Chairman
- Frank D. Hargrove, Sr., Vice Chair
- Watkins M. Abbitt, Jr.
- Kenneth C. Alexander
- Kathy J. Byron
- Vince F. Callahan, Jr.
- Allen W. Dudley
- H. Morgan Griffith
- Timothy D. Hugo
- Johnny S. Joannou (no email – contact info here)
- Joseph P. Johnson, Jr.
- Dwight Clinton Jones
- Terry G. Kilgore
- Jennifer L. McClellan
- Kennth R. Melvin
- Samuel A. Nixon, Jr.
- Kenneth R. Plum
- Harry R. Purkey
- Mark D. Sickles
- Terrie L. Suit
- Robert “Bob” Tata
- R. Lee Ware, Jr.
VIVIAN J. PAIGE | All Politics is Local 
You guys don’t get it.
First, Payday lending fees, calculated as APR (which is inappropriate to begin with) are much lower than bounced check charges calculated as APR.
Second, Payday lenders are lenders of last resort. If they weren’t needed, they wouldn’t thrive. Let’s see you try to live paycheck to paycheck and walk into your neighborhood bank with no collateral and ask for $500 to keep the electricity on and the water running. Good luck. Who should these people turn to, the government, national banks, regional banks, you? Whose gonna help these people?
Finally, of course the fees are high as an APR basis. These are the least creditworthy borrowers who are making short term loans with no collateral. Without the current fee structure there is no way the risk could be justified.
I just love when “liberals” lament the plight of the poor yet try to set up government created barriers to the poor joining our economy. Payday lenders provide a necessary and often last resort service. When your grandmother, or friend or neighbor gets evicted because no one would loan them money and the Payday lenders are out of business, I hope you’ll go apologize.
Oh, I think we get it. There is no way you can justify interest of 780%. No way, no how. I recognize the risk associated with these loans, but 780%? Uh, no.
This is state-sponsored loan-sharking, pure and simple. The government should not sanction such behavior. The people being taken advantage of are the working poor.
These businesses thrive not only because of the need for their services but also because of the obscene profits. The “buy here, pay here” car dealerships exist for the same reasons – and they seem to be able to make a profit with the 36% cap.
(To say that they offer no collateral is not really true, by the way. They are providing access to their checking account for repayment.)
Virginian, did you take those talking points from the Community Lenders Assoc. or somesuch unbiased source?
Even as an avowedly-left liberal, my work in a heavily regulated industry has brought me around to a generally anti-regulation viewpoint. That said, the lenders targeted by this bill are destructive bottom feeders, at best. It’s an incredibly profitable industry that, for the most part, doesn’t bear the societal costs it incurs. Bring on the regulation.
MB – Actually, those are my opinions formed through representing lenders AND borrowers in credit related litigation. Every single borrower I’ve dealt with who went to payday lenders says the same thing. It goes like this “I was desperate for money because of medical/electric/water bills. No one in my family had any money to lend me. My credit cards were maxed out and no banks would even talk to me. I went to the payday lender as a last resort and they saved my butt.”
We have two options. The first option is to allow those people to make an educated decision to incur the costs of borrowing the money. The second option is to preclude this option and simply let them default on their other obligations. Let them bounce checks. Let them lose their cars. Let their electricity be turned off. Let them declare bankruptcy.
We all know how manipulative you’re being with the numbers. Of course a fee for money looks huge if you misconstrue it as an APR calculated over a year. However, a bounced check charge looks even bigger. The societal costs of not having this last resort are astronomical. Of course, I’m sure if you all had your way this wouldn’t be a problem since the government would simply stand on the street corner and hand out money.
Vivian: Payday lending is just legalized loan sharking. When I spoke out about legalizing this practice in the G.A. and the harm that it would do, I kind of expected Republicans to back it. What was suprising was the number of Democrats who voted for it. Later I checked VPAP and understood why. It would be instructive to check the voting record of who supported changing Virginia’s ursury laws.
You’re ascribing far more to me than what I’ve said, Virginian.
And if these wonderful lenders of last resort “saved [the borrower’s] butt”, why were you talking to them? I think you’ve spinning it a bit much, no?
MB – Obviously I was talking to them because they were involved in legal matters. What’s your point? I assume you’re not saying that anyone whose ever needed short term money and “had their butt saved” couldn’t subsequently need representation? By the way, the only part of my post that was directed at you was the very first part. The rest was directed at the uninformed amongst us. I’ll let you decide to whom that applies.
Leslie – I agree with your characterization. As for following the money, the folks at Bored Young Professionals did just that.
I still say that there can be no justification for 780% interest. There’s a reason so many of these companies have popped up. It’s less about need than greed.
Thanks for sharing this alert, Vivian. I asked this question in comments at Raising Kaine, but didn’t get a response. Can anyone here point me to the answer?
“I have a lot to learn about the Virginia state legislature. Is it normal practice for the committees to meet when the legislature’s not in session?
Can anyone suggest ways to track this activity, or do we have to rely on alerts from interested lobbies?”
Nell – no doubt someone else will jump in here but as far as I know, committees often meet when the legislature is not in session. The General Assembly website has a list of meetings which you can access here.
First, let me just say “I can’t believe I agree with something Leslie Byrne says.” But this is an act that must go. This does nothing more than soak poor people. Just as I do not believe in hand-outs from the government because they make poor folks abandon the principle of self-reliance, so too do I oppose these “Pay Day Loan Sharks.” I will push this at the Advance next weekend. I hope most Republican’s will support the repeal.
Walt – sometimes we are all on the same side. Isn’t that nice? 🙂
It is so great to see these notes! In the past, it has only been groups like the Virginia Interfaith Center for Public Policy or the Virginia Poverty Law Center (and AARP) that have been raising issues with these abusive practices. The more voices we have the more likely it is that we can get the industry to compromise at no more than 36% interest!
Thank you for lending your voices to the growing outrage. Certainly no moral Virginian thinks that businesses should make money by any means, regardless of how damaging it is to working families and communities.