©
It doesn't take a Ph.D. in economics to operate a predatory loan business. And yet the efforts by state lawmakers to regulate the industry make payday lenders look like geniuses at avoiding real limits.
Last year, legislators adopted lukewarm consumer protections, including a requirement that lenders make only one loan at a time to an individual. A majority of payday lenders responded by offering a new type of unregulated open-end loan, which allows them to approve multiple loans to a customer and charge exorbitant fees without any restrictions.
Rather than put an end to that practice, lawmakers this year passed another half-measure that says lenders can't offer both payday and open-end loans simultaneously. Payday lenders that switch to open-end loans are banned for 10 years from returning to their original business under the new law.
Four companies deftly dodged the 10-year waiting period by relinquishing their payday licenses a few days before the new law went into effect on April 8. Perhaps it's no coincidence that two of the firms chose April Fools' Day to surrender their licenses.
The largest payday lender in Virginia opted for a different and more ominous tactic. Advance America asked state regulators for approval to offer both payday loans and a type of loan secured by a motor vehicle title.
A provision in this year's bill is virtually an invitation to companies to peddle both types of predatory loans. Lawmakers are loath to put limits on car title loans because companies that specialize in them have been far more generous campaign contributors than their payday cousins. The largest, LoanMax, has given state candidates and political parties nearly $600,000 over the past five years, compared to $153,000 in donations by Advance America, according to the Virginia Public Access Project.
Legislators insist they are cracking down on predatory lending, noting that the number of payday offices has declined from 786 last year to 630. But that is more likely the result of the current recession. Payday lenders depend on borrowers with a job and a paycheck. High unemployment eats into their business model.
Further, the Virginia Poverty Law Center and a cluster of religious and consumer groups have worked hard to make the abusive businesses feel unwelcome here. Even the conservative Family Foundation celebrated last week's announcement that one payday company was leaving with an e-mail declaring "we're glad to see them go."
Those groups are pressuring lawmakers to adopt real reforms on payday and car title lenders. A legislative study group will examine car title loans this summer, but Senate Majority Leader Richard Saslaw promises only to cap interest rates below 300 percent per year.
That's not good enough. The easiest and only effective consumer protection against predatory lenders is an annual interest rate cap of 36 percent on all loans. Until state lawmakers accept that fact, every day in Virginia will be April Fools' Day.
Delicious
Digg
Reddit
Facebook
Twitter
Google
Yahoo
Getting the facts straight
I manage a payday loan store in Virginia and I continue to read articles about “PREDATORY LENDING”. This is a false allegation! There is nothing predatory about payday lending. We offer a service to consumers who need cash between paydays. This is a needed service! The total cost of a payday loan is disclosed to consumers on signs in stores and in loan agreements. There are no hidden charges! Payday loan opponents and the misinformed media know very little about payday lending. An APR is not an appropriate measure for short-term loans. This is not how a payday loan works! I have never read or heard of anyone placing an APR on a one-time NSF charge or a late fee on a credit card. If they were looked at the same way, the APR would triple the one time fee of a payday loan. I think one needs to get their facts straight before writing these articles. Most of the material I’ve read about payday lending is far from the truth. It’s no wonder the public is confused.
This is nuts
I can't understand why people insist on manipulating the numbers and misdirecting public with stereotypes of evil corporations. These lending businesses provide jobs for real people, btw. The slant on this debate has wholly distracted us from critiquing our selves as a society for living beyond our means.
Perhaps it takes a PhD in
Perhaps it takes a PhD in economics to understand that a 36% APR would not be enough to pay an employee to approve a payday loan, let alone cover the cost of operations. Payday loans are NOT 350% interest every two weeks but 350% Anual Percentage Rate. That is grossly inaccurate and ill-informing. The only way that is possible is to take out a loan every two weeks for an entire year thus paying fees each time. Anyone who feels the need to do so clearly needs credit counseling and more than just a payday loan.
Clueless Logic
Perfect example of ignorance to the way the industry works. You might want to check your math & how APR works. People like creative logic should be thanking the industry for providing another product. New PDL laws that took effect on 1/1/09 hurt close to 500,00 people in the State of Va but who cares about them. The GA did not, nor did the opponents of the industry as they cannot provide an alternative. Members of the GA will tell you it says alot about a bill when nobody likes it. Congratulations on reaching a conclusion that nobody likes! I'm looking forward to November!
They have NO right...
Neither the commonwealth nor the newspaper have any right to tell me how I can spend my money. If I want to float a loan, no matter how ill advised, it's my choice. And it's my responsibility to pay it back. Please don't try to tell me that it's "for my own good" or try to tell me that "we are protecting you". That's baloney and it's meddling in my personal affairs. I agree that these lenders are lousy choices for sources of cash, but hey guys, I can still choose if I want to use them. Or not. It's MY choice.
Cap on predatory interest rates?
As of right now, a line of credit at one of these predatory lenders is slightly over 450% interest every 2 weeks, and 350% if they get their payments via an authorized electronic debit from your checking account. These "new" lines of credit are far worse than the payday loans!
They need to outlaw this type of lending PERIOD!!!
Bush's Fault??
Well, that makes just as much sense.
If the General Assembly passed a law limiting the price of newspaper advertising and subscriptions to less than the cost of publishing the newspaper, would the closing of the Pilot be the result of the slow economy?
The Pilot, and other economically clueless left wingers succeeded in driving these short term loan providers out of the State, so take responsibility for the consequences as people are evicted or lose their automobiles because of a short term cash crunch.
You took away the safety net, stand up and accept the responsibility that comes with meddling in other people's business.
Does the Pilot do research?
"But that is more likely the result of the current recession." Says who? Are payday lenders closing across the country? No. Payday lenders have been closing when laws have gone into effect. Virginia's database system just went into effect this year, and to no one's surprise, payday lenders are starting to close.
Some states have passed an interest rate cap and payday lenders have closed. Would the Pilot then say that it was the recession that did it? Or would they completely change their minds and give the credit to the rate cap that they like and suddenly deem the recession irrelevant?
The Pilot is entitled to its opinion, but it would be nice if the writers found some, any, evidence for their assumptions before launching into their foregone conclusions.