Senate moves to prohibit open-end loans by payday lenders

BY DENA POTTER

RICHMOND

Lawmakers one-upped payday lenders on Wednesday, passing a bill banning them from offering other high-interest loans.

After three years of debate, the General Assembly passed tough new restrictions on the short-term, high-interest lenders last year. Before the law took effect in January, the majority of the state's 800 payday lenders began offering open-end loans, which are unregulated and have sky-high interest rates.

On Wednesday, the Senate unanimously passed a bill to bar payday lenders from offering open-end loans. It also would bar the businesses from offering payday loans for 10 years if they give up their licenses in order to offer open-end loans.

A similar bill was making its way through the House.

The legislation now goes to Gov. Timothy M. Kaine, who has 30 days to sign, veto or change it.

"It's clear that the problem needs to be fixed," said Kaine spokesman Gordon Hickey, who stopped short of promising the governor would sign the legislation.

Although the legislation sailed through the General Assembly, some legislators and advocates were upset that it didn't crack down on car title lenders, who already operate under the state's open-end credit law.

The open-end credit law allows lenders to charge whatever they want as long as they don't charge anything for the first 25 days.

Consumer groups have argued that both payday and car title lenders prey on the vulnerable by trapping them in a cycle of debt. Some legislators have been hesitant to cap the interest rate they could charge, though, because the lenders say it would cause them to close up shop, cutting off credit to those who can't get it from traditional sources.

Jay Speer, executive director of the Virginia Poverty Law Center, called the bill a "small step," but said more needed to be done to protect Virginians from car title lenders.

"We are very disappointed that the legislation explicitly allows the car title lenders to continue their unregulated, unrestricted lending," Speer said.

Car title lenders loan up to 50 percent of a car's value, charge interest rates of 25 to 30 percent per month, and if the borrower falls behind he or she risks losing the vehicle.

A bill to crack down on car title lenders was held off so the issue could be studied before next year's session.

"You can only do so much at one time, but I can assure you that the situation with the car title loan people will be looked at next year and be looked at pretty thoroughly," said Senate Majority Leader Richard Saslaw, D-Fairfax County.

Saslaw had been the payday lenders' biggest supporter before they began offering the new loans to get around the restrictions, which included limiting the number of payday loans borrowers can take out each year.

Payday lenders say they weren't trying to get around the new laws, but were attempting to offer their customers additional credit options.

Jamie Fulmer, spokesman for Advance America, Cash Advance Centers Inc., the nation's largest payday lender, said his company had no intention of giving up its payday lending license so it can continue to offer its new line of credit option.

"We respect the decision of the Senate and look forward to continuing to serve our thousands of satisfied customers in Virginia," Fulmer said.

The bill also applies to any affiliates or subsidiaries of the payday lenders.