Tuesday, January 15, 2008
Editorial: Payday loan bills stack up
If a business can't survive charging 36 percent interest, then it shouldn't.
From the RoundTable blog
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Lawmakers appear no closer to addressing payday lending reform than when they last gathered in Richmond. There are those who want to protect consumers and those who want to protect campaign contributors. Roanoke's Del. Onzlee Ware favors what at first blush appears to be common, middle ground. It's not.
Ware understands that both lender and borrower can abuse the system. Borrowers can pile up debt upon debt, while lenders turn a blind eye. That's why Ware suggests creating a statewide database to make sure everyone stays honest about it.
This sounds sensible if you don't look too closely. But as the Newport News Daily Press reports, Veritec, a company that provides payday loan databases in other states, is pushing for this with the aim of winning a no-bid contract worth millions of dollars.
And who would pay? The cash-strapped borrower, with yet another fee tacked onto the loans.
Ware, who received $5,200 from lending companies during the 2007 election, defends his stance because he worries that cash-strapped constituents would have no place to turn if payday lenders ceased to exist.
Banning payday lenders or capping loans at 36 percent -- akin to a ban, according to the Wares of the General Assembly -- would force the companies to leave Virginia. Then, payday loan supporters claim, the working poor would be sentenced to a worse fate: writing bad checks that come with stiff bank fees for insufficient funds.
That scenario falsely assumes that society and, yes, even the markets will not step up with better options. In fact, better options are already becoming available.
The publicity surrounding last year's session regarding predatory lending practices of payday lenders elicited a reaction from credit unions and churches. Some are setting up loan pools to provide the same service for a nominal fee.
Nonprofits don't need to take $15 on every $100 in order to survive. Plus, they can offer credit counseling to help people learn how to live within their means rather than dig a deeper financial hole.
That's something Ware should encourage.
