Article Courtesy – Virginia Interfaith Center for Public Policy
Support Repeal of the Payday Lending Act
If you lend money to my people, to the poor among you, you shall not deal with them as a creditor; you shall not exact interest from them.
(Exodus 22:25)
During biblical times, abusive lending practices were addressed by instituting strict standards, including banning the charge of interest to the poor (Exodus 22:25). Likewise, in the story of Zaccheaus, Jesus commended him for promising to repay the excessive fees he had exacted from the oppressed (Luke 19:8-9). Today, in modern times, predatory lending practices exploit low to moderate income people. This is both a legal issue and a moral issue.
The Problem:
The Bureau of Financial Institutions reports nearly 3 million payday loans were made to more than 387,000 borrowers in 2004, from 696 payday loan locations in Virginia. The Virginia General Assembly passed a Bill authorizing payday lending in 2001. This legislation prohibits payday lenders from renewing, refinancing, or extending a payday loan. It also prohibits lenders from making more than one loan at a time to a borrower. However despite these prohibitions, many Virginia borrowers are, in effect, renewing their loans and getting more than one loan at a time:
§ Many borrowers get back-to-back loans. The borrower pays off his loan and then immediately gets a new loan. Often, the borrower does this repeatedly. A report done by the Bureau of Financial Institutions indicates that the average payday loan borrower got 7 loans from each payday lender from whom he borrowed in 2003.
§ The borrower goes to a second payday lender for a loan to pay-off his first loan and eventually winds up with two, three or more outstanding loans at the same time. A study funded by the payday industry trade group reported that payday customers use an average of 1.7 different payday lenders per year.
§ The average Virginian that borrows from a payday lender gets 12 payday loans per year. This is an estimate based upon the report from the Bureau of Financial Institutions and the payday industry group report. This means that the average Virginia payday loan borrower pays $840 to repay a 6-month $300 loan.
The Virginia Partnership to Encourage Responsible Lending (VaPERL) is a coalition working to reduce the dangers of predatory lending in Virginia. Members from organizations around the state include: AARP, Virginia Poverty Law Center, Virginia Interfaith Center for Public Policy, Housing Opportunities Made Equal, Richmond Better Business Bureau, Virginia Credit Union League, Virginia Organizing Project, Piedmont Housing Alliance, New River Community Action, Voices for Virginia’s Children and others. Our research and collaboration strongly indicate the need for reform. Explanations of four legislative recommendations follow, listed from most supported to least.
Solutions:
HB 1684 (Del. Jennifer McClellan) and HB 2159 (Del. John O’Bannon): Both of these bills repeal the Payday Lending Act. A repeal would cause payday lenders to operate under the Consumer Finance Act which regulates small loans and caps their interest rates at 36% APR.
HB 1799 (Del. John Cosgrove): This bill establishes a maximum annual percentage rate of 36% for payday loans.
These bills will be heard first before the House Commerce and Labor Committee. It’s likely one of these bills will move through Committee and over to the Senate Commerce and Labor Committee where it will compete against bills that propose other restrictions on payday lending but that do not cap the interest rates. It’s imperative to communicate to members of the Senate Commerce & Labor Committee that the only REAL reform is a cap on the interest rates charged – without a cap, these loans will remain usurious and predatory. Please visit, call, or write to members of this Committee with this message. Members of this Committee are Senatros Wampler, Colgan, Saslaw, Chichester, Miller, Norment, Stosch, Stolle, Potts, Edwards, Williams, Watkins, Wagner, Newman, and Rerras.
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www.VirginiaInterfaithCenter.org