Wednesday, May 24, 2006
Editorial: Payday loan reform is past due
If Virginia will not try to rid itself of this predatory industry, lawmakers should outlaw its worst practices.
From the RoundTable blog
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Virginia's politicians take pride in the commonwealth's business-friendly climate. They should be shamed, though, by the payday lending industry that they've allowed to thrive in a loose regulatory environment.
This business is loan-sharking without the leg-breaking. And state lawmakers who welcomed it into Virginia by passing the Payday Loan Act of 2002 need to repair the damage they have done.
Opponents of payday lending want an outright ban, and it's easy to see why. The poor are the industry's chief victims. Richmond Del. John O'Bannon filed a bill this year to repeal the Payday Loan Act, but the House shuffled it off to a subcommittee and carried it over to next year.
It is well worth considering.
Industry-chummy legislators are not likely to have the stomach for a complete reversal, though. And, as payday lenders argue, some people have legitimate needs for small, short-term loans and nowhere else to turn in emergencies.
Yet immediate crises only deepen if people come to rely repeatedly on extremely high-interest payday loans to bail them out. Virginia's lack of regulation makes it all too easy for payday lenders to trap desperate people in an endless cycle of borrowing and repayment at rates approaching 400 percent a year.
Lawmakers can change the equation, if they will.
Typically, payday lenders make small loans, for a fee, that come due in a couple of weeks, after the next payday comes around. If borrowers cannot repay the loan when it is due, they can take out another, and another, and another -- on and on, until they have paid many times the amount they initially borrowed.
It's such a bad deal for borrowers that one would think customers would be few. But Virginia now has more than 750 payday stores that made $1.2 billion in loans last year. And 85 percent of their customers were back at the same store in the same year. A watchdog group estimates that more than 90 percent of payday loans are made to repeat borrowers, a measure, perhaps, of growing numbers of people who are one paycheck away from financial ruin. These loans can hasten such ruin.
Yet of a slew of bills introduced this year to curb predatory lending practices -- to prohibit rollover loans, limit the number a person could take out in a year and extend the pay-back time -- none made it out of the House of Delegates.
The industry's shocking numbers demand action.
