Payday loans: The trap escalates
Posted by Stephen on May 22, 2007
Editorial published by: Roanoke Times
The good news is fewer Virginians borrowed from payday lenders in 2006. The bad news is they ran into even more trouble with more loans.
Payday loans work just as state lawmakers claim — for about 10 percent of the borrowers. For the other 90 percent — some 386,598 Virginians in 2006 — the system sucks them in the same way neighborhood loan sharks did back in the day. Today’s borrowers may not get their legs broken, but they sure endure the pain and agony of rapidly escalating debt.
State lawmakers blew a chance in their most recent session to prohibit these loans or at least cap them with acceptable interest rates. As it is, with annual percentage rates reaching 782 percent, these loans are nothing short of usury.
On the campaign trail, lawmakers should be asked to explain their position on payday loans, as this topic will surely face them again come January.
Voters should get ready for half-truths and deceptions. Lawmakers will point to the state’s latest report and say that the marketplace is working, and people are figuring out themselves that payday loans might not be right for them. As evidence: 12,354 fewer Virginians in 2006 turned to payday loans.
But that avoids the larger truth. The industry still saw the number of loans and amounts increase substantially despite fewer borrowers: 433,537 Virginians made nearly 3.6 million loans worth more than $1.3 billion.
To support these numbers, the industry lured in most of the borrowers so that they had to roll one loan into another — at an average $45 fee per pop. Some 96,831 people were so trapped that they took out more than 13 loans. And 12,486 Virginians — that’s 38 percent more than in 2005 — were sued by payday lenders.
But lawmakers don’t want to see those people. Instead they concentrate on the minority of borrowers who take out just one loan.
They posture that these loans fill a real need when people are short on cash and hit a financial snag just shy of payday. Lawmakers like to pretend this, because they, too, have benefited from the phenomenal growth of the industry.
Since the General Assembly legalized this brand of loansharking, campaign contributions from lending and consumer credit companies rose from $72,260 in 2002 to $399,776 in 2006, according to the Virginia Public Access Project.
And, unlike the industry’s borrowers, lawmakers don’t ever have to worry about paying the money back.
Except, of course, through their votes.
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