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Payday sharks circle in the VA General Assembly

Posted by Stephen on February 3, 2009

Published on HamptonRoads. com | PilotOnline. com

Even when predatory lenders are forced to play defense, they still call the shots at the state Capitol.

After legislators adopted modest consumer protections for payday loans last year, some companies simply circumvented the spirit of those reforms by offering a new kind of loan.

So-called “open-end” loans are as destructive as payday loans, and probably more so. State law allows the companies to charge any interest rate they please after a 25-day grace period.

Lawmakers are lining up to wag their fingers at the miscreants, but there’s a real danger predatory lenders will once again game the legislative process to smother meaningful reforms of their industry.

Senate Majority Leader Richard Saslaw, who shielded payday lenders from the toughest regulatory proposals last year, now says he’s angry over the industry’s end-run around the watered-down 2008 law he helped craft.

But the bill he is sponsoring this year merely bans lenders from hawking both payday and open-end loans simultaneously. Companies are free to drop their payday licenses and switch exclusively to open-end loans at annual interest rates of nearly 400 percent.

Saslaw rushed his measure through the Senate while delaying action on a bill that would impose a much tougher, but necessary, penalty.

Loudoun Sen. Mark Herring’s legislation would prevent payday lenders from offering open-end loans while also curbing abuses by car title lenders, a related industry that operates without any state oversight. The bill also preserves protections for members of the military.

Payday and title lenders have been generous contributors to both political parties the past five years. The largest is LoanMax, which gave $580,770, including $42,750 to the Democratic Senate caucus and $18,000 directly to Saslaw, according to the Virginia Public Access Project.

Saslaw insists he is not giving cover to his donors.

He has publicly warned payday lenders not to switch to unregulated loans, reminding them “we meet every year.” But legislators are meeting now, and there is no reason to give predatory lenders another year to trap thousands of Virginians in catastrophic debt.

Lawmakers should keep state lending laws simple by capping payday, title and open-end loans at an annual interest rate of 36 percent. And they should do it immediately.

Any compromise that preserves the existing set of complex and confusing rules is a win for predatory lenders, who will simply find a way to manipulate the system to their advantage. With their bottomless bag of dirty tricks, they will stay one step ahead of legislators in an endless game of deceit in which Virginians are the real losers.

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2 Responses to “Payday sharks circle in the VA General Assembly”

  1. James Baxta said

    Even better: stop passing laws to solve every problem. The goal of this legislation was to protect the consumer, but consumers do not have the access and clout that lobby groups have. It’s far more sensible and effective to help consumers make better financial decisions than to pass shoddy laws.

  2. Stephen said

    I really, really do agree with you. The problem is, I don’t accept the notion that it will ‘take care of itself’ just because it’s a free market issue. Some oversight and some regulation is essential to the success of our market system, hence, carrots and sticks as a tool to regulate spending and production to avoid inflation or stagnation. In this case, usery is dispicable and completely contrary to free market principles that demand the the consumer be able to freely participate in the market through free choice. These predatory payday loan sharks eliminate the consumer from the market by removing their ability to make choices.

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