RICHMOND -- A divided House of Delegates committee voted Tuesday to kill legislation repealing Virginia's payday lending law, but legislators will continue efforts to regulate the practice during the upcoming General Assembly session.

The House Commerce and Labor Committee voted 10-8 to defeat House Bill 619, which would have limited the high-interest, short-term loans to the same 36 percent annual interest rate cap applied to other state lending institutions. The legislature carved out an exception for the payday lending industry in 2002, but some lawmakers now say that effort opened the door for a practice that traps borrowers in a hopeless cycle of debt.

"The problem is not going to go away," said Del. John O'Bannon, R-Henrico County, the chief sponsor of the bill that was defeated Tuesday. The bill had been carried over from the legislature's 2006 session.

Representatives of the payday lending industry said the bill would deny consumers access to a legitimate source of short-term credit that is not available from other financial institutions.

Reginald Jones, a lobbyist for the bill's opponents, said lawmakers should not punish borrowers "who use it responsibly, who use it appropriately, who know when they go in exactly what they're doing."

The payday lending law allows a borrower to write a personal check for the loan principal plus a fee of up to $15 per $100 borrowed and limits the maximum loan to $500. The lender holds the check until the borrower's next payday and cashes it if the loan and fee are not repaid.

Critics of payday lending said the industry lures low-income borrowers into a financial trap that forces them to take out one loan after another to pay off previous loans. The North Carolina-based Center for Responsible Lending released a report last week that concluded that the average payday borrower in the U.S. pays back $793 for a $325 loan.

The study also noted that the neighboring states of West Virginia, North Carolina and Maryland hold all lenders to their consumer lending laws, making no exception for payday loans.

Virginia has 90 licensed payday lenders operating at 792 stores throughout the state, according to the state commissioner of financial institutions. In 2005, 3.4 million loans were made to 445,891 individuals.

A broad coalition of Virginia organizations representing churches, retirees, minorities, military families and the poor backed O'Bannon's bill.

"I don't think you will likely again see a coalition of this kind any time soon in Virginia," O'Bannon said during a lengthy hearing in a jam-packed committee room.

Some supporters of the bill noted that the recent defense authorization bill signed by President Bush includes a 36 percent interest rate cap on consumer loans to active-duty military families.

But representatives of payday lenders said the industry could not function if the rate were applied to all short-term borrowers.

Two Western Virginia lawmakers on the committee, Dels. Terry Kilgore, R-Scott County, and Kathy Byron, R-Campbell County, voted against the bill.

House Majority Leader Morgan Griffith, R-Salem, meanwhile, voted for O'Bannon's bill. Griffith voted against the 2002 legislation authorizing payday lending.

Griffith said he hopes lawmakers can build some sort of consumer protections into the existing law during the upcoming session. At least two legislators have announced plans to sponsor bills to regulate payday lending.

Del. Glenn Oder, R-Newport News, already has filed a bill that prohibits payday loans to borrowers with three or more outstanding loans or within 48 hours of a borrower terminating a loan. Oder's bill also would require the State Corporation Commission to establish a database to ensure compliance.

Carol Stewart, vice president of government affairs for Advance America, said her company would accept some additional regulation from the state and likely go along with a database. Advance America operates 142 payday lending centers in Virginia.

"We absolutely want to work with the legislature, as we have in the past," Stewart said.