Conservative Viewpoints

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



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Editorial: Compounding

Posted by Stephen on March 10, 2008

The General Assembly appears to have made some progress in protecting consumers who use payday loans. The legislation it passed — HB 12 and SB 588 — creates an industry-wide data base, extends repayment periods, and limits the number of loans per customer to one at a time and 10 per year — more or less.

Some of the legislation’ s details are so complex as to border on incomprehensible. The limitations placed on the lenders are complicated enough that a borrower might need to hire a CPA before closing a deal. Confusion of this sort always creates advantages for the more sophisticated party to the transaction — and in this instance that would almost always be the payday lender.

The 36-percent interest-rate cap seems to be largely symbolic because the expensive fee structure remains unchanged for the most part.

Despite the rather modest reforms in the legislation, the payday industry continues to claim the changes will damage its ability to conduct business and could force some lenders to close shop. Whatever libertarian, free-market sympathies one might harbor for the payday lenders have been obliterated by their utter refusal to accept any reforms that provide meaningful protection for consumers.

The industry will fight all measures that threaten even the mildest damage to its profit margin. Of course, private businesses have every right to lobby for their best interests. Elected officials, on the other hand, are obligated to evaluate competing claims and then adopt legislation that serves the common interest. On the issue of payday lending, the Assembly still does not seem up to the task — with the Senate, led by Democrat Richard Saslaw, deserving most of the blame.

The legislature has earned some credit for taking a step in the right direction. Reportedly, no one is happy with the results. At times, that signifies a good compromise. In this case, we suspect the dissatisfaction means the Assembly passed a weak, confusing bill designed to give itself some relief from a contentious and time-consuming issue. The goal should be protection for vulnerable consumers lured into dangerous debt traps. This bill does not meet that objective.

Gov. Tim Kaine apparently has decided this is the best he can expect from the legislative branch and has said he will sign the bill. Political reality may leave him no alternative. Though the small reforms passed both houses by large margins, the compromise is by most accounts a fragile one cobbled together only after much contentious debate. Any attempt by the governor to amend it could cause a collapse — not unlike last year’s debacle — which would leave the rules unchanged and spell another clear victory for the payday lenders.

Oddly enough, the law dosen’t take effect until January 2009, which won’t give next year’s Assembly time to judge the effectiveness of the weak reforms it has just passed. The lenders are complaining now, but we suspect they’re also enjoying quiet sighs of relief. Virginia’s problem with consumer-unfriendly payday lending has not been solved. We hope our elected officials will not be crass enough to pretend that it has — and claim credit for an accomplishment.

Editorial published 3-09-08 at http://www.inrich.com/cva/ric/opinion/editorials/more.apx.-content-articles-RTD-2008-03-09-0099.html

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