December 29, 2006
You like to think you can protect your clients from everything. You think you covered it all, talked about every problem that might come up. You showed them how to dispatch aggressive collectors, how to ease that FICO score up and up, but then... it happens...((( Payday Loans )))
(aka Cash Advance)
The two most dreaded words in the world of Budget Counseling.
Most likely, you've seen the multitude of storefronts littered along Richmond Highway. They claim that they are a valuable service to low-income families because they offer a loan when other lenders won't. USA Today says that, "Payday lending has become a $40 billion annual business (in loan volume) with more than 22,000 U.S. outlets, according to the Community Financial Services Association of America, the industry's trade group. By comparison, Starbucks has 8,624 U.S. locations and McDonald's about 14,000." Thats almost 3 payday loan outlets for every Starbucks, and almost two for every McDonald's!
But perhaps you're unfamiliar with how these work. Count yourself lucky. Unfortunately, I can explain:
- You want money today, but you won't be paid in another week or two.
- You give a payday lender a check dated for your next payday.
- You get an immediate loan, minus a fee (I've seen as high as $30 for every $100 borrowed!)
- On your payday you either let them cash the check or pay ANOTHER FEE to renew the loan until the next payday.
This kind of predatory lending has become a very hot political topic as of late. According to the New York Times, 11 states have actually banned the practice. President Bush recently signed a bill that limits the APR to 36% for military families, but... WHAT ABOUT THE REST OF US?
Well here in Virginia a bill was defeated in a State House of Delegates committee by a narrow margin, 10-8. According to the Virginia Partnership to Encourage Responsible Lending (VaPERL),
"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."
It never even made it to the House of Delegates for a vote. I sent a letter to my representative, Delegate Thomas Rust. Here's his response on December 11...
Mr. Barnett:
As I am sure you know, the issue of payday lending is very complex from a
regulatory perspective. When the General Assembly initially approved
legislation allowing payday lending in Virginia, it was done with the
understanding that federal regulations already allowed it.
After several years of payday lending in Virginia, I have become
increasingly concerned about the proliferation of the practice. Several
payday and car title lenders have sprung up in my district recently.
Although I am sympathetic to the needs of working families, many of whom are
unable to get loans except through these types of high-interest loans, I am
increasingly inclined to curtail payday and car title lending in Virginia or
eliminate the practices entirely.
I understand Del. O'Bannon's HB619 was defeated last week in the House
Committee on Commerce and Labor so it will not come to the full House of
Delegates. If new or similar legislation is introduced I will review it
carefully and give it my full consideration, as I am very concerned about
the effects of these high-interest loans.
Thank you for taking the time to contact me. Please feel free to contact me
with any further questions or comments.
Sincerely,
Thomas Davis Rust
