Conservative Viewpoints

"Government is not the solution…it is the problem" -Ronald Reagan



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Payday Lending in 2008: Reform or Repeal?

Posted by Stephen on February 6, 2008

Rather than force the payday lending industry to shape up, legislators should ban the odious practice. This appears as if it will be the year that Virginia legislators find the will of the people more difficult to ignore than the campaign checks from the payday loan industry.

On Tuesday, delegates announced a compromise bill to regulate the industry while senators talked tough about either passing reform or abolishing the industry.

“I think Virginians are crying out for some reform,” said Senate Commerce and Labor Committee member Tommy Norment, R-James City.

The compromise legislation announced in the House is a mishmash. It would, as industry opponents have been demanding, cap annual interest on payday loans at 36 percent. But it would also allow a fee of 10 percent of the loan and a $5 verification fee.

Depending on the term of a loan, the fees and interest could add up to an amount nearly equivalent to the $15 per $100 now commonly charged by lenders, a usurious 390 percent annual interest rate on a two-week loan.

The bill would make it harder for borrowers to get trapped in the cycle of debt promoted by the worst lenders.

Individuals would be allowed only one payday loan at a time, with a required 24-hour “cooling off” period between loans. That way, customers couldn’t get a new loan to pay off the old one.

A statewide database would be created to track customers and loans to ensure the new requirements were met.

That’s all good, but if such strict controls are necessary to keep an industry from sinking customers into ruinous debt, wouldn’t it be better, and far simpler, just to revoke the 2002 law that allowed payday lending?

Industry lobbyists argue that they serve a legitimate need for short-term loans, and that their services are actually cheaper than some of the alternatives, such as bounced-check fees or credit card cash advances.

But testimony in recent years has demonstrated convincingly that many industry players don’t serve a vital need, they exploit it.

This compromise is a step forward, and perhaps the best Virginia can get right now.

If it passes, consumer watchdogs should continue to keep a close eye on the industry. If abuses continue even after this reform, the case for repealing the 2002 law would be that much stronger.

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