The Virginian-Pilot
©
RICHMOND
Six months after it was launched, a loan program created to aid government workers has doled out nearly $1.4 million worth of loans in increments from $100 to $500.
Gov. Timothy M. Kaine, who unveiled the program in July to give borrowers an alternative to payday lenders, believes those numbers show a successful model that can be replicated by private industry.
So far, nearly 2,800 loans have been issued. More than 1,300 of them came within the first month, according to the governor.
"The results of the Virginia State Employee Loan Program suggest that if individuals are offered an alternative to predatory loans, they take it," Kaine wrote in a Wall Street Journal editorial published Wednesday.
In Virginia, full-time workers who are members of the Virginia Credit Union are eligible to participate in the pilot program, meaning an estimated 100,000 state employees qualify.
Loans backed by a state employee charitable fund are awarded after a borrower completes an online financial course and a test.
The annual interest rate is 24.99 percent, which amounts to a repayment of $108 on a $100 loan or $540 on $500. Borrowers are limited to one loan at a time and two per year.
The state loan program comes in the wake of General Assembly action in 2008 that placed new regulations on the payday lending industry, including a longer repayment period and a state database designed to prevent borrowers from receiving more than one loan at a time.
One company on the Peninsula with a similar program, Riverside Health System, began offering loans in November 2008 after a company executive learned about the three-figure interest rates payday lenders can charge.
To start the fund, a Health System contribution was combined with employee donations to provide financial backing for the program through a credit union, Riverside spokesman Peter Glagola explained.
Two types of loans are offered: as much as $2,000 to pay back a payday loan; and up to $500 to avoid borrowing from that type of lender.
State officials and those at Riverside say most borrowers have repaid their loans and defaults have been isolated.
Riverside Health System has granted 124 loans to date, though Glagola said the frequency of requests has dropped significantly since the program started.
"What we have seen is it's taking care of itself - it's a sustainable program," he said. "We believe it really has helped out this part of our employee population that has been using these loans."
Julian Walker, (804) 697-1564, julian.walker@pilotonline.com
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Another stupid program Kaine
Another stupid program Kaine thought up.
The State is now in the banking business and can not pay its bills.
It is financed by
a stae employee charitable fund, has a high interest rate, and is not using state money. How is this a state bank? And I bet they set up payroll deductions for the payback and have a provision to deduct it from the final paycheck if they leave unexpectedly.
A $100 loan
only has a payback of $108. If anything it may not be fair competition...but I won't begrudge Kaine on this one as I posted earlier it is making use of the charitable deductions made by state employees. I do wonder how these charitable donations were originally supposed to be allocated and to whom/what...? When I worked for a previous employer we specified what organization we wanted our money to go to.
A society drowning in debt.
In a society which has seen personal indebtedness rise an estimated %117, the creation and regulation of non predatory loan systems is a must for the nation. These types of models need to be demanded by the people and implemented at the major financial institutions. Loans should help people obtain their dreams, such as creating a small business or purchasing a home. They should not, however, be an illusion, proffered by predatory lending institutions which are deceptive and abusive, designed to give disproportionate returns in interest to the lender and are designed for the borrower to fail. How can a system which prospers when the bowerer fails be just to society or beneficial to the economy? Loans systems need to be designed where the lender can make a fair profit and the borrower can still receive an end of year statement where more is paid to principal than interest. Current predatory loans result in responsible, hardworking , Americans,paying thousands a year in interest and almost nothing on the principal. We deserve and must demand a better system.
What if they don't pay?
They didn't mention what they do if they don't pay. Who covers the loss? If the interest rate doesn't match the risk then it will be a money losing situation.
What does the interest rate matter
What does the interest rate matter if the borrower doesn't pay? I would have to say a borrower is less likely to default on a loan that he can actually payback than a high interest loan that he will never be able to pay back. Doesn't sound like it has been an issue with this program. Maybe that is because these are reasonable manageable loans.
By the way, who covers a a defaulted loan given by predatory lenders and financial institutes?
Basic finance
It doesn't work that way. Part of the interest collected covers the cost of the defaults. The higher the risk of default the higher the interest must be to break even. People that have such poor personal finances that they need to get short term loans will likely be a very high risk.
It sounded fishy at first but...
then the article mentioned that it was a state employee charity fund that is backing these loans. It sounds like this is money that was witheld (voluntarily) from state employee paychecks to be used as charity. If each of those loans were the minimum $100 and all of them were repaid the charity fund could actually make a profit of $22,400. As long as that profit goes right back into the charity fund and not for general redistribution that's great and it's about time Kaine had something that didn't result in a deficit.
Thanks again Kaine
Why do they make a program that is only designed to aide state & government workers? It should help every citizen that pays taxes or it should help no one.
They should create programs for all our citizens.
And they will, if the people demand it. But we sit silently at our desks and computers, balancing the checkbooks, struggling to make ends meet; calculating how much interest we paid and hoping for a good tax return to offset the financial drain caused by these deceptive,and abusive upfront interest loans. Meanwhile the banks reap huge profits and payout excessive executive bonuses. Their lobbyists pay millions to ensure that the legislators make the laws which allow the system to exist and that the executive branches appoint corporate connected people to oversee the administration and regulation of these laws and systems. It truly is a form of organized crime and we are the victims.
Change does not come from the government. Change comes from the unity of the people. There is no government or corporate institution more powerful than the just demands of a unified people. Stand up and demand a just loan system and you will receive a just loan system. Or, remain silent and remain in debt at the mercy of an injust system.
When we find our sense of moral injustice once again, and when we find our voice to speak out, we will once again find justice and democracy in our nation.