RICHMOND
The General Assembly has passed what many members call the strongest payday lending rules in the nation - and the governor sounds ready to endorse it.
Just what those rules would do to the industry all depends on which lobbyist is talking.
The compromise agreed to Thursday limits borrowers to one loan at a time and five in 180 days, but it also increases transaction fees. It creates timeouts when borrowers can't get loans - a seeming protection for customers abusing the loans and a potential penalty for those who use them without incident.
"This substitute is significantly better than what was discussed last year," said Sen. John Edwards, D-Roanoke, adding that the "payday lending industry must change."
Ward Scull, co-founder of Virginians Against Payday Loans, said people still can get about a dozen or so loans a year.
"This is a step in the right direction," Scull said. "It's not a giant leap for mankind, that's for sure."
The legislation agreed to Thursday is more restrictive than that passed by House of Delegates and Senate panels earlier this week. The new law creates an extended payment plan and a database to track who's borrowing what amount and when.
The database and the rest of the law's provisions would go into effect in January.
The Legislative Black Caucus and others had pushed for more, leaving some to wonder whether the compromise would last the week. In the end, language was added to the bill forcing lenders to tell borrowers they can have more time to pay.
And for those people who get five loans in six months and take the extended payback, the new deal lengthens the time they have to wait for another loan to 90 days, from 60. Anyone who gets five loans in six months and pays them back on time would be barred from another loan for 45 days.
"It's a good consumer protection bill," said Del. Glenn Oder, R-Newport News, one of the package's sponsors.
Some industry critics dispute that because lender fees would increase. Businesses now can charge $15 for every $100 loaned, with a loan limit of $500. The compromise lets lenders charge 20 percent of the loan amount, plus a $5 filing fee, plus a 36 percent interest rate.
"Not everybody's happy with a compromise," said Del. Terry Kilgore, R-Gate City.
Jamie Fulmer of Advance America, which runs 150 stores of Virginia's 800 or so payday lending storefronts, said the bill's unintended consequences might hurt borrowers as much as lenders.
"I'm certain there will be lenders who will be forced to close here," Fulmer said.
Del. R. Lee Ware Jr., R-Powhatan, said the deal punishes people who use payday loans without falling into the "cycle of debt." He said a provision to make loan terms twice as long as a borrower's pay cycle changes the fundamental nature of the industry.
"It's no longer, except in our Alice in Wonderland description, a payday loan," Ware said.
Gov. Timothy M. Kaine said he hadn't read the compromise bill but liked what he heard about it.
Kaine said representatives of the industry and advocates for vulnerable people had represented to him that they approve of the compromise.
"And obviously their recommendations go a long way," he said.
Richard Quinn, (757) 222-5119, richard.quinn@pilotonline.com
Julian Walker, (804) 697-1564, julian.walker@pilotonline.com
Jen McCaffery, (757) 446-2627, jen.mccaffery@pilotonline.com
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Questions...
Aren't the fees charged posted somewhere? Do the people that use these services honestly not know how much they will be charged for the loan? Obviously they can't get a loan any place else which is why they go there in the first place. Shouldn't they be charged higher interest rates and fees since their credit is so screwed up? Shouldn't that be a lesson to pay your bills on time? If I loaned someone money without pulling their credit report, I would use "agressive" collection tactics as well. And how agressive can they really be? It's not like they're showing up to anyone's door with Tony Soprano or anything. If all parties are in agreement when the loan is taken out, then what exactly is the problem?
this is sad
If payday loans could be done more cheaply, some payday lender would be out there doing it and getting all the business.
These payday loan customers are not dumb. If you explain to anyone that you can borrow $100 but you'll owe $115 in 2 weeks, that doesn't take a rocket scientist to figure out what they'll owe.
This is the first step towards Virginia's ride to a nanny state... soon they'll be telling furniture companies what they can charge for a couch, Starbucks what they can charge for coffee, and companies like CarMax what they must pay to buy your car (people that sell their cars to CarMax for half their value are also desperate and still choose to sell their car for 60 cents on the dollar to solve a cash need). But thank God the lottery will remain so that people can pour thousands of their hard-earned dollars each year into a game where the odds of winning a free ticket are 1/15.
The key is education and disclosure, not price controls. For those of you who think interest rate limitations are a good thing, you obviously don't see the bigger picture.
PS Did you know the "APR" on a late fee at Blockbuster Video can equate to 7700% if using the same methodology.
this is sad
This is a sad day. Congratulations banks and credit unions. You'll be able to pick up hundreds of millions of dollars in bounced check fees.
Before I begin, I must answer a previous poster who couldn't figure how the fees equated to 36% interest. Interest and APR are very different things. Interest is the amount charged on an amount borrow and accrues per day, week, and year. A fee is a fee. APR is calculated by taking the interest that will accrue if the loan, adding the fee for the loan, dividing by the loan amount, and then multiplying be the duration of the loan (in days) divided by 365. In other words, a $100 loan with a 36% interest rate and a $10 fee due in 30 days would have an interest rate of 36% and an APR of approximately 276%.
For those of you folks that think price restrictions are good for consumers, think again. Price restrictions only limit access to goods and services (in this case, loans). In a capitalistic economy, competition forces prices down until the prices can't go lower. Have you ever seen a pizza restaurant charge $100 for a pizza? It's because competition forces prices down.
next?
Next on the agenda: Refund Anticipation Loans from tax preparers. RALs can have 'effective' APRs of over 200%. The govt should please protect us from these RAls. We're obviously not smart enough to realize the consequences of our decisions.
jmo
What government creates, they can regulate
The State has EVERY right to regulate the predatory payday lender industry. It is through the State's creation of corporations, LLCs, etc that allows the owners to protect themselves from being personally liable for their (or their employees) actions, such as abusive collection practices or a number of other potential suits. In fact many of the lenders are owned by LLC and one can't find out who really owns them. Are they even owned locally or do the profits leave the state and/or country? Anyway, since the State has created these entitites, and protects their owner(s), then they have EVERY RIGHT to regulate them, to protect the citizen from the beast the State has created and/or allowed.
What am I missing?
From the bill as passed, which confirms the 36% cap, plus these goodies:
"B. A licensee may charge and receive a loan fee in an amount not to exceed 10 percent of the amount of the loan proceeds advanced to the borrower.
C. A licensee may charge and receive a verification fee in an amount not to exceed $5 for a loan made under this chapter."
Let's see: $200 loan for four weeks would have to pay back $200 x .36/12 = $6.00, plus $20 plus $5, for a total of $31.00. You can have ten loans per year, if I read it right. On a simple math basis, (forget compounding), you'd end up paying $60 interest, plus $200 loan fees, plus $50 verification fees, for a total of $310, plus the loan itself. Doesn't that work out to an effective interest rate of 155% per year, not 36%? Obviously, if the loans are for higher amounts, the effective interest rate would decrease, but never to 36%. What am I missing?
What business is it of the
What business is it of the government?
Don't write bad checks
Tell your son not to write bad checks. At $140 in fees that at least 4 bounced checks. How many of them were checks written to payday loan lenders where he had to pay their fee and the bank fee? Remember, people who borrow from payday lenders write "checks" from accounts that don't have any money in them, hoping to have it later. MANY MANY of those people don't have the money later and then have to pay the ban fees AND the payday loan fees. Just use cash and live within your means, it works for me!
Now do something about the banks
My son overdrew his account to a total of $155.00. Bank charged him $140 in fees. Makes the payday lenders look like pikers. They were all ATM or debit card transactions...if the bank had just declined to pay them he would have been fine. The bank refuses to code his account so that overdrafts are not allowed. Needless to say, he will get a new bank, but they all do the same thing now.
Applause on the rate reduction
Applause goes to the legislature for reducing the interest rates from 1000%, 500% or 300% down to 36%. Its a huge step in the right direction. Thanks!
Once again....
.....the government steps in to protect people from their own STUPID decisions. The very same people who use these loans are also customers of 'rent-to-own' places and high interest car dealerships. It seems only fair that those businesses have their interest rates capped too. I mean, if you're making financially irresponsible decisions throughout your whole life, there's no sense in learning from your mistakes, right?