Another good issue to look at, The Virginian Pilot today shows the candidates’ stand on payday lending. For those who are unfamiliar, Virginia has a limit on interest rates of 36% – except for payday lenders, who are allowed to charge rates approaching 400%. (The statute allows for a fee of $15 per $100 borrowed.) Again, this is an issue that I’ve written about in the past.
Graphic credit: The Virginian Pilot (click to enlarge)
VIVIAN J. PAIGE | All Politics is Local 
We should be looking not only at their positions on this issue, but whether they have taken money from these interests. It is all too common for a politician to say one thing and do another.
Case in point: Watkins Abbitt, 59th District.
Good point, Mark.
This looks like the closest thing one can get to legal highway robbery… Now tell me again whom does it benefit?
First, for the record, I have received no money nor have I had any contact at all with payday lenders. My position is based on economic reality.
Payday loans are of very short duration, and high risk. They are not profitable at normal interest rates, it costs too much to process them to make it back in so short a term. So, if the rates these lenders can charge is limited to bank rates, the result will not be cheaper short term loans, it will be no emergency loans available for people with poor credit and no savings who find themselves facing eviction or repossession of an automobile or other unplanned expense.
Certainly, many misuse these loans and some regulation is warranted, but we should not let our good intentions rob these people of their only option when they find themselves with their backs against the financial wall. Sometimes good intentions combined with a poor understanding of economics can do more harm than good.
I stand by my position until someone shows me a better option for emergency loans to those folks who live at the financial margins.
Is it fair to take advantage of people in desperate situations?
Dr. Tabor, thanks for taking the time to explain your position and for clarifying your campaign’s financial relationship with payday lenders. Having read your opinion, I appreciate your thoughts on the matter, though I respectfully disagree with a central premise of your argument. Defending payday loans as the “only option” for people in financial jeapordy, though well-meaning, ignores several larger economic revolving around why there is a market for payday loans and what other options we might be able to provide. One might as well argue that a man who has fallen off a 30-foot cliff should be allowed to fall another 20 feet because falling further is preferable to actually hitting the ground — but what we really need to look at is how to keep people from plummeting off a fiscal precipice.
You correctly state that payday lending is a high-risk financial venture for lenders, but this is fundamentally because the buyers in the market for such loans are in such dire financial peril in terms of both their available capital and their available credit. One can generally accomplish what a payday loan accomplishes – at a lower interest rate – by simply using a credit card and making a payment on the purchase when their next paycheck comes. If you find yourself in the position where payday lending is the “only option” left to you, it’s because you don’t have available capital and you are inelligible for other standard credit options. The very fact that you are in the market for a payday loan is therefore not the result of an isolated “unplanned expense,” but a symptom of larger financial vulnerability. You propose treating the symptom with a high-interest, short-term loan; what we need to treat is the disease, and that starts by helping people make responsible credit decisions.
Virginia should do more to help at-risk consumers protect themselves through better education on credit and debt counselling to help folks rebuild a line of credit that can allow them to manage unexpected expenses responsibly. In the meantime, if payday lending is such an unprofitable and risky venture and can’t survive without its predatory practices, maybe it’s in the best interests of the market at large to allow the industry to dry up while we help people find better options.
Tricia Stall, by way of the Virginia Senate Republican Leadership Trust, has taken large amounts of money from the Payday lenders. These are predatory lenders and they thrive off of the poor and ignorant. They need to be brought under control. Clearly politicians, taking money from them can’t be depended upon to do anything, and Stall is one of the worst of them.
There is only one thing that politicians who take money from these low life predators understand. VOTES. Vote against the Pay Day lenders and for those who don’t take their money.
Why should the rate limits be capped for these loans? No one is forced to borrow money. It’s a contract entered into by adults. If people are stupid enough to take out these loans, let them be stupid.
Dr. Tabor – thanks for chiming in. My question is a simple one: prior to 2002, the statute was fixed at 36% for ALL lenders. A repeal of the statute simply puts us where we were before. Why is that a bad idea?
Brian – the rate is capped for ALL loans. The question is why should these be treated differently. If the lenders can’t make a killing on the loans, then they’ll just have to go elsewhere – or go out of business.
Vivian,
The problem is the intended short term and size of the loan. Even at 36%, if the loan is used as intended, just to get to the next payday, then there isn’t enough time for the interest to accrue at that rate to cover the costs, and the risks, on that kind of loan. A $500 loan held for 10 days at 36% interest is only $4.93 interest, that’s not enough to cover the paperwork, much less the risk and profit. So, if we impose that limit, such loans will not be made at all.
Sure, it is generally unwise to make such a loan, but we’re talking about people who have bad credit, no credit cards, and equally desperate relatives and friends. If a major car repair falls in the same week as their rent and car payment, and they are already behind, they can wind up homeless and unemployed (because they can’t get to work) if they don’t have that option available.
Of course, some people misuse those loans for longer terms or other purposes, but the question is, do we make those loans unavailable for legitimate use in order to prevent some from misusing them?
You know I’m a Libertarian, my view is we do not take choices away from all people because some choose unwisely.
Anyway, thanks for the forum to make my position on the matter clear.
OK, but that didn’t answer my question 😦 Prior to 2002, this option didn’t exist – and folks made do, both borrowers and lenders. So in reality, it is not an imposition of a limit; rather, it is simply placing these loans back on the same playing field that they were on prior to 2002.
Prior to 2002, I knew a number of loan sharks who made similar loans, but who were a bit less ethical in their collection methods.
Vivian,
Why should ANY loan rate be capped? Let people do business as they please.
Accepting the premise of your question however, it seems that a good reason exists and was detailed above by Dr. Tabor. The lenders are taking a serious risk on a relatively small amount of money and deserve to be compensated for doing it.
Totally. If someone wants to sell themselves into slavery, they ought to be able to. Freedom of contract, baby.
Brian – I disagree that Dr. Tabor has provided good reason. If the reasons are so good, why did the Feds limit payday loans to active duty members? If the reasons are so good, why didn’t they exist prior to 2002?
What has happened over the last 5 years since the law changed is that vulnerable folks have been taken advantaged of – and our government aided and abetted.
As I said in the opening paragraph, I’m not going to rehash all that has been said before.