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Editorial calls for “No window dressing on payday lending reforms”

Posted by Stephen on July 9, 2007

The Virginian-Pilot

If Gov. Tim Kaine really wants to do something about payday loans, half-measures aren’t enough.

Yet that’s what Kaine seems inclined to propose in the next General Assembly session, after lawmakers failed to adopt tepid reforms this winter. Kaine now says he wants to toughen the rules, but without trying to cap interest rates.

Without strong rate caps of 36 percent, however, any legislation is mere window dressing. That’s why the Virginia
Partnership to Encourage Responsible Lending, a coalition of religious, business and consumer advocacy groups across a broad ideological spectrum, has pushed for real reform. Without these changes, low-income Virginians will continue to be mired in the quicksand of payday lenders.

The payday lending industry will tell you that it cannot stay in business with such caps. It’s a high-risk lending business, officials say. We advance money without collateral and without credit checks to people in need, they say.

That sounds more like a problem for the lender than for the person seeking the loans. And without the guarantee of such a huge windfall on one end, would lenders even be in this racket? State payday lending law allows licensed lenders to impose $15 fees for every $100 they hand out. For the typical two-week loan, that works out to an annual interest rate of a whopping 391 percent.

Not even Tony Soprano was brazen enough to charge that much.

It’s no coincidence that Congress banned payday lending for military personnel. Our troops shouldn’t fall into the payday lending trap, nor should their debt make them security risks.

That’s made civilians a lucrative market in Virginia . A recent study showed that in 2006, nearly 290,000 Virginians took out between two and 13 such loans. Oftentimes, unable to pay off the initial loans, people took out additional ones. It’s a system rigged for the lender, not the borrower.

If Kaine is serious, he’ll tilt the scales more the other way, even if it drives out a system that Virginia would do better without.

Views expressed by editorial writers do not necessarily reflect those of management of Conservative Viewpoints.

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