Conservative Viewpoints

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



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Payday legislation passes…for better AND for worse

Posted by Stephen on March 7, 2008

Three years of fighting for fair and reasonable restrictions on the greatest predator lending industry America has seen since the days of loan sharking on the shipyard docks has come down to the signature of Governor Kaine.

Legislators are singing the praises of the bill saying “While this matter may be imperfect, it is the product of imperfect people in an imperfect system,” said Sen. A. Donald McEachin, D-Henrico, an industry opponent. “It is the best that we could do at this time. It is considerably better than the current system.”

“It’s not a perfect bill. I think it is much better than many people thought we would have at the end of the session,” stated Senator Kenneth Stole, R-Virginia Beach.

As Stole states, this legislation is far from perfect. It has been suggested that this legislation will result in an APR cap of 36%. This is a falsehood the industry hopes is quietly accepted. The truth is the APR will be every bit as high as the current 390%.

Lenders can charge 36% interest plus an additional 20% of the loan amount plus a $5 verification fee. Other provisions included in the legislation include:

*Only one loan at a time from any lenders industry-wide will be allowed. This concept should assist in eliminating the idea of taking a second loan to pay off the first. However, it is dependent on a successful tracking system linked to each store with accurate information put in by each lender. This is a device easily manipulated by an industry dedicated to deceit and manipulation.

*It suggests a 36% interest on the principle of the loan. This will be the downfall of this legislation. It is a travesty to suggest that this plan actually caps the interest at all.

*The 20 dollar fee per 100 dollars borrowed is up from the current 15 dollars and it places the APR almost back to its current levels, even with the 2 pay period loan term.

*The $5 verification fee is supposed to pay for the database. This fee is ridiculous when you consider it actually costs approximately .54 cents to $1.00 to pay for database transactions.

*The loan term is now two times the borrower’s pay cycle which is to say they get two paychecks to pay back the loan. This is perhaps the best and most critical element of the legislation, but is mitigated by the escalation in fees.

*The legislation offers an extended payment plan on any loan, but the borrower can only take advantage of that once a year.

*The plan offers a 60 day payback period with a 90 day lockout before a borrower can take a new loan. Many industry critics do not believe it will be used often.

If the borrower gets 5 loans in a 180 day period, their 5th loan comes with a choice:

They will pay off the loan in full, and then be locked out of borrowing for another 45 days, or they will go into an extended payment plan with four equal payments across 60 days followed by a 60 day lockout period.

Kaine says he is prepared to sign the legislation as is. “The last two years we have missed opportunities to protect vulnerable people by people digging in their heels on one side or the other or in some cases both,” Kaine said.

The bill passed the House 91-9 and the Senate 37-2 with one abstention following a procedural vote.

Kaine has an opportunity to set the law straight. Will he fulfill his promise and create a hard cap on predator payday lenders? Or, will he quietly sign the bill into law hoping none of us notice?

Virginia let this predator lending business enter our communities in the summer of 2002. For the first time since then, they have a legitimate chance to right a wrong. Unfortunately, few of us have confidence that anything meaning-full will occur.

As a result, the sad truth is, the fleecing of Virginians may get worse instead of better.

Stephen Winslow is the executive editor of Conservative Viewpoints.

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