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General Assembly should ban payday lending

Posted by Stephen on August 1, 2007

OpEd by: Michael H. Lane and Ward R. Scull III

Large-scale financial and business scandals such as Enron, Arthur Anderson, Long Term Capitol Management, Tyco, the savings and loan crisis of the 1980s and insider trading on Wall Street garner splashy media attention.

When these schemes impact the middle and upper classes they inspire high level government attention and action ranging from firings, fines, indictments, to prison sentences and the downfall of major businesses. New York Attorney General Eliot Spitzer’s fight against corruption on Wall Street led him to the governor’s mansion in Albany.

Ultimately, responsible legislatures and regulators step in to correct the deficiencies and close loopholes that facilitated the illegal actions.

Not all schemes and scams are against the law, however. Insiders and those with “perfect knowledge” can sometimes legally manipulate financial systems to their benefit. When these schemes affect stockholders and customers of the middle and upper classes, the media attention forces boards to action such as the recent case of Home Depot and the quarter-million-dollar golden parachute to its mediocre chief executive officer.

Down at the level of the working poor and the lower middle class, the system is not so responsive. Services are not so readily available, prices can be higher, quality lower, and competition can be nonexistent. This is particularly true in the area of financial services, a void that predatory lenders are so anxious to fill.

One form of predatory lending is the payday loan. Payday lenders charge triple-digit interest, currently capped in the state of Virginia at a whopping 782 percent. These transactions and companies do not operate under the bright lights and scrutiny of the media, regulators and legislators that Wall Street financial institutions command, but thrive in dense city neighborhoods where there are no billionaires, millionaires, mansions or investigative reporters.

The fact that they operate within the law, employing every loophole they can find, makes their scam legal, but not reputable, moral or decent. Only recently have lawmakers and reporters begun to examine the usurious payday lending industry and its tragic consequences for those who fall prey to it. In several states, 12 in fact, this scrutiny has resulted in banning payday loans. The U.S. Congress has also banned payday loans to the military.

Last year the Virginia General Assembly considered bills to ban payday loans or cap them at 36 or 72 percent annual percentage rate, but these efforts were thwarted by the powerful and well-funded payday lending lobby, posing as champion lenders to the downtrodden.

Payday lenders, unlike legitimate financial institutions, cannot operate on a 36 percent APR or even 72 percent. They require an APR in triple digits. If “hypocrisy is the homage that vice pays to virtue,” payday lenders have taken hypocrisy to new levels as they parade victims of payday loans as beneficiaries of the industry and convince lawmakers of the value of their services to those in need. But the multibillion-dollar payday loan and their high-priced lobbyists are not your average hypocrite.

They operate nationally and at the highest level. They use their resources, advertising and high level access to convince the public, lawmakers, the media and their victims that they are providing a valuable service to those most in need with the least access to financial services.

The Virginia General Assembly cannot be blamed for falling victim to the assault of this billion-dollar megalith any more than the victims of the loans should be held responsible. In fact, the legislators in good faith directed the industry to reform itself. This mandate was met with something between a sneer and a snarl as the predatory lenders contemptuously expanded their disreputable business.

In 2008, there will be no excuse for falling for the fairy tale of an industry in service to the community. Virginia should join 12 states and the U.S. military in banning or capping payday loans at 36 percent APR.

Lane and Scull are co-founders of Virginians Against Payday Loans.

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

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2 Responses to “General Assembly should ban payday lending”

  1. dev said

    People choose to go to the payday loans because they may not have any where else to go. If they are responsible, they would pay back on time and avoid the high interests. Paying back on time is actually cheaper than having to deal with a fee of a bounced check. These people do have and option to go to them or not. It’s not like someone is forcing them to go there.

    • Dev, from the predator lender Cash Express, joins us for the second post on his dirty practice. While Dev does his best to be a good steward for his company, he provides little more than the same stale arguments the industry has been throwing around for ages. No one forces anyone, and, it’s cheaper than a bounced check, blah blah blah.

      397% interest rates, locking people into loans they can’t escape and taking their choices away from them doesn’t add up to a free market argument. Yours is a business that must have a repeat customer to survive. The only way you can POSSIBLY create a repeat customer is to create a set of circumstances that FORCE the customer to come back because they HAVE NO CHOICE. No one pays fees to you because they want to; taking payday loans is not a hobby for people.

      Don’t get high and mighty in this blog my friend; there’s nothing fair and balanced about your practices and everyone knows it. You have the audacity to suggest that you are providing a service when you, and everyone associated with Cash Express and other predator lenders, knows all you do is exploit the needs of those in dire straits. In these economic times you should be flogged for what you are doing. The time will come when you are simply dismissed from public domains and I’ll have a nice tall glass of wine to celebrate.

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