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OpEd says: “Payday lending debate far from over”

Posted by Stephen on July 16, 2007

Editorial: Lynchburg News & Advance

Payday lenders dodged a legislative effort to reduce their usurious interest rates at this year’s General Assembly session. But Gov. Timothy M. Kaine signaled last week he hasn’t given up on leashing the industry. Good for him.

The payday loan industry and its lobbyists survived a measure that would have capped interest rates on their loans at 36 percent – the same cap that applies to other lending institutions in the state.

It sounds, however, as if the governor and lawmakers are ready to take another shot at lowering those payday lending interest rates. Speaking at a ceremony to mark the passage of tax-relief legislation for the poor, Kaine said the state must do more to help the working poor. Without being specific, he said he would either propose or support additional restrictions on payday lenders.

“I am very committed to working with legislators to try to find meaningful ways to reform this industry so that people don’t dig themselves in deep and get taken advantage of at vulnerable moments of their lives,” he said. “I just really have it on my heart that people shouldn’t take advantage of folks who are poor when it comes to lending them money.”

Payday lenders have flourished in Virginia since 2002 when the state uncapped regulations on the industry allowing it to charge interest rates of as much as 400 percent on an annual basis.

A payday loan costs $15 for every $100 borrowed. The maximum loan amount is $500 and the typical term is one or two weeks. If renewed for a year, as is done in some cases, the interest rate hits 390 percent.

But that’s not the worst of it, as a number of legislators have pointed out. Many borrowers take out more than one such loan. Figures show that multiple loans can often end up creating a financial trap for the borrower. The only way out of that trap is to arrange for another loan. And the borrowers – often people who live from paycheck to paycheck – become entwined in a cycle of debt from which they cannot escape.

Foes and supporters of the payday lending business waged heated debates during the 2007 legislative session, but could not agree on how to reform it. Some lawmakers supported interest rate caps (36 percent) that the industry said would put them out of business. Others preferred limiting the number of loans a borrower could have at one time. That would have created extended payment plans and forced lenders to make sure their customers did not have too many loans with other payday lenders.
Kaine said last week he hopes lawmakers, consumer advocates and the lenders can find a middle ground during the 2008 session. He said he would prefer to repeal the law that allows payday lenders to play their trade in the state, but realizes that won’t happen.

The governor predicted that public pressure will help force a meaningful compromise next year. “The public has become more and more aware of the problem,” he said. “I think the momentum for reform is actually increasing.”

Payday loans have attracted the attention of the Pentagon and members of Congress, who last September put a cap of 36 percent annual interest on payday loans to military families because of concerns they were falling too far into debt.

If the 36 percent interest cap is good for military families, it ought to be good for families throughout Virginia. Let’s hope Gov. Kaine can get that message across to a majority of the lawmakers next winter.

Views expressed in OpEd columns are not necessarily those shared by management of Conservative Viewpoints.

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