RICHMOND
A House committee approved a bill Tuesday that would change the way Virginia's payday lenders do business and, if the measure becomes law, would restrict an industry that's flourished with support from legislators since 2002.
The measure passed 19-3 in the Commerce and Labor Committee despite objections from an industry lobbyist who argued the proposal would lead to more bankruptcies by limiting options for consumers who need the small loans of up to $500.
The bill restricts borrowers to only one loan at a time and up to five a year. The limits, supporters said, would help people "break the cycle of debt." A mandatory database would keep track of how many loans people have taken.
The proposal also calls for an interest-rate cap of 36 percent; however, lenders could charge up to 10 percent of a loan's value plus impose a $5 verification fee.
Foes of payday lending - religious, labor, retirement and anti-poverty groups - testified in support of HB12, which has attracted bipartisan support. The bill, sponsored by Del. Glenn Oder, R-Newport News, now goes to the full House. A Senate committee is working on its own reform proposal.
Reggie Jones, a lobbyist for the industry, said the House bill would hurt consumers and put out of work about 2,000 people who are employed in Virginia lending offices. A large crowd of employees attended the hearing, wearing green stickers that said "I choose payday lending."
"In many, many cases a payday loan is the best credit option for individuals," Jones said. "The borrowers aren't complaining."
Jones, the only person to testify Tuesday before the committee against the bill, said 68 complaints were filed with the State Corporation Committee out of the 3.5 million loans the industry made from about 800 stores last year.
Among legislators, the harshest criticism of the industry came from Del. Kenneth Melvin, D-Portsmouth, who voted for the bill.
"The business model of this industry is getting people trapped in the cycle of debt," he said. These are predatory loan practices, pure and simple. We made a tragic mistake in 2002 when allowed this so-called industry into this state."
Aaron Applegate, (757) 222-5122, aaron.applegate@pilotonline.com
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cycle of debt
Cycle of debt, blah blah blah! If these people can't figure out that when you take out a payday loan, you have to pay it back when they get paid, then they deserve to get stuck in a tornado of debt. Why are we pitying these people? I don't make enough money to get by every month, so I take out payday loans, and then I pay them back. If it means that I have to live on top ramen for two weeks, then that is what I do. The key is only borrowing what you absolutely need, and then paying it back when you get paid. We all have unexpected things that happen, and payday loans are a great resource, but if you are not smart about it, then yes, you will get stuck in a cycle of debt. Just think ahead and if you can't pay it back, then don't get a payday loan! This is not rocket science. What we need to do though is leave the payday lenders alone, and focus our efforts on the renobs who are screwing up by using payday loans when they can't afford them.
There is a demand
The large number of supporters and consumers in addition to the few number of industry complaints proves that short-term loans are a product that many have been able to use responsibly and to their advantage, without succumbing to the so-called “cycle of debt.” Any financial product has the potential to have negative effects if it is abused and/or misused. Dissatisfaction usually leads to protests and complaints from customers, not those who have never been in a position to need such services. Politicians should focus on providing more programs and opportunities to help Middle Class America get out of debt instead of creating more procedures which will eventually be the burden of taxpayers!
Where's the rage?
If payday loans are so bad, why do so many people use them? Why aren't the CUSTOMERS complaining? The only ones complaining don't even use these loans. Where is the outcry from the people supposedly caught in the cycle of debt. You rarely hear from them. The complaint rate is not even 1%! I don't understand this whole issue—its all about politics and forgetting about the people.