Sunday, September 02, 2007
Payday lenders put their 2 cents in
Lenders' payments to lobbyists and campaigns will likely grow as the General Assembly considers reform.
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What is a payday loan?
- A payday loan allows people to borrow, on a short-term basis, small amounts of money that a bank would not likely lend. Most payday lenders don’t conduct credit checks, providing a source of loans for people with bad credit. However, borrowers will in turn pay an interest rate that far exceeds the maximum 36 percent allowed for other lenders.
- The lender agrees to take the borrower’s personal check as collateral for a cash advance. By contract, the lender agrees to not deposit the check until the borrower’s pay day, yet pays cash immediately. Up to $500 can be borrowed, with a minimum term of seven days. The Payday Lending Act of 2002 allows lenders to charge up to $15 per $100 borrowed.
- The problem, according to opponents of the practice, is that borrowers can get caught in a “cycle of debt” in which they’re constantly taking out new loans to pay off old ones. According to the Virginia Bureau of Financial Institutions, more than 91,000 Virginia customers each received 13 or more payday loans in 2005.
- Even if one company decides to blacklist a customer from taking out a loan, there are plenty of other options; The Virginia State Corporation Commission authorizes more than 80 payday lending companies to operate within the state.
Payday lenders’ contributions to Virginia politicians
Payday lenders have contributed a steadily increasing amount of cash to Virginia politicians since the industry was regulated in 2002. Some of the largest:
- Advance America Cash Advance Based in Spartanburg, S.C., Advance America is the United States’ largest payday lender. This year it has contributed $10,000 to Republicans and $9,500 to Democrats. Since 2000 it has contributed more than $133,000.
- Check into Cash Based in Cleveland, Tenn., Check Into Cash started in 1993 and has offices throughout the United States. In 2007 it contributed $6,250 to Republicans and $6,000 to Democrats. All told, it has contributed more than $50,000 to state candidates and committees since 2002.
- Ace Cash Express Based in Irving, Texas, Ace Cash Express operates 1,573 stores in 38 states and the District of Columbia. In 2007 it donated $21,000 to Republicans and about $14,500 to Democrats. Since 2005 it has donated more than $57,000.
- BCCI - Management Co./CheckSmart Based in Dublin, Ohio, CheckSmart operates 206 stores in 10 states, including Virginia. So far this year it has given nearly $10,000 to Republicans and $3,500 to Democrats. It first contributed money to state candidates in 2002 and has contributed a total of nearly $75,000.
- QC Holdings Based in Kansas, QC Holdings started in 1984 and now operates 550 branch locations across the United States. This year it has contributed $5,000, with about $500 more going to Democrats than Republicans. Since 2002 it has donated a little more than $16,000 to Virginia candidates and committees.
The payday loan industry came under fire from state legislators during the 2007 General Assembly session, and to find shelter it spent more money on lobbyists and campaign contributions than at any point in its short history in Virginia.
Through June 30, half a dozen of the largest payday lending companies contributed $86,496 to candidates and political action committees. And between May 1, 2006, and April 30, lenders paid nearly $1 million for lobbyists.
The Payday Lending Act of 2002 exempted payday lenders from a 36 percent interest rate cap that applies to most loans. The act allows payday lenders to charge a $15 fee for each $100 loaned. That can translate to a triple-digit annual interest rate. Industry advocates say payday lenders provide a service for people in a crunch who, because of bad credit or other reasons, can't borrow from a bank. But critics of payday lending say its high interest rates often lead borrowers into a cycle of debt from which they can't escape.
Responding to those concerns, state lawmakers filed a number of bills during this year's General Assembly session that would have applied stringent reforms or removed the interest rate cap exception, which payday lenders said would have effectively put them out of business.
Despite intense debate, legislators failed to pass any legislation applying to payday lenders. But Gov. Tim Kaine has said he plans to revisit the issue -- and lenders' payments to lobbyists, political action committees and campaigns will likely continue to grow.
Certainly, the payday lending industry isn't the only special-interest group giving money to lawmakers. The Web site of the nonprofit Virginia Public Access Project, which tracks campaign finance and spending, reveals a slew of interest groups spending money on candidates. That includes businesses, advocacy groups such as the National Rifle Association and Sierra Club, and also social issue groups such as Equality Virginia and the Family Foundation.
Appalachian Power, for instance, has donated nearly $40,000 to state political causes this year, while Ed Murphy, chief executive of Carilion Clinic, has personally contributed nearly $4,000 to various lawmakers.
But payday lending is notable because the industry has really only existed in Virginia since 2002, with interest spiking this year. And many expect things to get only hotter next year.
"I'd say we'll have it [a debate on payday lending] every year, no matter what degree of reform is eventually passed," said state Sen. William Wampler, R-Bristol. "I'd say there'll be amendments to it every year. That's not a bad thing."
Wampler chairs the Senate Committee on Commerce and Labor, which along with the similarly named House version serves as a clearinghouse for legislation applying to payday lending. The committees must approve any bill before it can reach the full House or Senate. As such, committee members are particularly targeted for contributions.
Wampler, who has received $2,000 from payday lenders over the past four years, said he doesn't closely track his campaign donors, though he has a pretty good idea of the largest contributors. Other legislators vary in how closely they monitor campaign finance:
>> Sen. John Edwards, D-Roanoke: "I've never paid that close attention to it."
>> Del. Ward Armstrong, D-Henry County: "I know they've made some contributions, [but] I had to ask you what I got from them."
>> Del. Onzlee Ware, D-Roanoke: "We always research every contribution we get over $100. There's a couple of people who are in the payday lending industry who've given me some money. They give it; I accept it as long as it's legal."
Sen. Marty Williams, R-Newport News, who served on the Senate Commerce and Labor committee but was defeated in a June primary, not only monitored his donors but returned contributions from two payday lending companies.
"It's such a controversial issue and people have so much passion about it," Williams said. "I wanted to make sure I went into the session with a clear conscience, a clear mind and a clear perception from my constituents that I was judging the issue objectively."
Perception wasn't the only reason he returned the contributions.
"Most of the time there's money coming on both sides of an issue," Williams said. "The payday lending industry poured millions of dollars out there nationwide. Their opponents didn't have any money to throw in. That's another reason why I rejected the money."
During the more than two-hour debate over payday lending in the Senate Commerce and Labor Committee this year, both sides were given roughly equal time.
Besides committee members, lenders also target leadership in each party. House Majority Leader Del. Morgan Griffith, R-Salem, who also sits on the House Commerce and Labor committee, received $2,000 from payday lenders over the past two years. That despite the fact he was among the delegates who voted to reinstate the interest rate cap to put lenders out of business. It's not like he has had a recent change of heart: He also opposed the original 2002 bill that effectively allowed them to do business.
"Sometimes when you make it clear you're in the other camp, the contributions slow down," Griffith said, but at the same time, he's not surprised that lenders continue to contribute, and that those amounts have dramatically increased over the past few years.
"They weren't even here five years ago, so obviously their contributions are going to go up," Griffith said. "They're concerned they want to have access and make sure that people know who they are."
State Sen. Brandon Bell, R-Roanoke County, echoed that idea.
"It's not trying to buy votes," Bell said. "It's more having recognition and a seat at the table. 'I helped you get elected and therefore I want to be part of the discussion when you sit down.' "
Jamie Fulmer, director of investor relations for Advance America, the largest payday lender in Virginia, said lobbying and campaign contributions are largely about educating lawmakers about the industry. With payday lending a relatively new industry in the state, that's especially important, he said.
Fulmer also took umbrage at the implication that there's anything wrong with the payday lending industry's giving money to legislators.
"Just because this is an industry that's been painted in a negative light, there's an implication there's something wrong with us participating in the political process," Fulmer said. "Like any other group, we have the same rights to participate in the political process. We comply with all rules and regulations, and we do so in an ethical way."
But groups that oppose payday lending are wary. Dana Wiggins, responsible lending coordinator for the Virginia Poverty Law Center, said he's watching to see how legislators vote when the issue returns next year.
"Will it affect votes when people get into the 2008 session?" Wiggins said.
"Maybe it will, and maybe it won't. We'll have to wait and see. There may be a correlation between how people voted and the money received."
Certainly, every legislator interviewed for this story said campaign contributions don't matter when it comes down to a vote.
"It doesn't make a difference for me," said Ware, who went against the Virginia State Legislative Black Caucus to vote against the bill to repeal the interest rate exception.
At that point, he had received no contributions from the industry. Since then he has received $1,750.
Regardless of their stance on payday lending, most legislators agreed the issue will be back in 2008. Ware is among those who think the industry fills a void and needs to remain in some form.
"We ought to not be in the business of making knee-jerk reactions," Ware said.
"If we take something from people, we better be prepared to offer an alternative. With payday lending, I don't see any alternative. The best way is to regulate, reform it and move on."
But others, such as Griffith, have signaled their intention to drop the hammer on payday lenders.
"It was a bad business to begin with," Griffith said. "They weren't getting issues resolved as fast as I'd like to see. If they can't get their act together, I don't believe we can allow them to continue going."
It looks as if 2008 could be another record-breaking year for the lending industry's spending on campaigns and lobbyists.
Staff writer Michael Sluss contributed to this report.
