Gotcha

Payday loans no bargain for Virginia consumers

Date published: 12/19/2006

Gotcha

Payday loans are no bargain

THAT JINGLE-JANGLE you hear is the sound of cash registers merrily ringing their way through the Christmas season. Having bought into the idea that love is best expressed materially, it's an easy time of year for some shoppers to overspend. That's why it's even sadder that a Virginia House of Delegates committee refused to lower the boom on payday lenders earlier this month. Come January, Christmas cheer will become winter fear for many.

Consumer protection laws are meant to shield the unwary from the unknown. For many, a payday loan seems like a quick fix to a short-term problem. All too often, however, that quick fix becomes a link in a chain that leads to bankruptcy.

Typically, a consumer turns to a payday lender for small cash--less than $500. The loan is due at their next paycheck, generally two weeks away. The lender charges a fee of $15 per $100 borrowed, plus interest. For a two-week loan, that amounts to about 390 percent. If a borrower gets paid weekly, the annualized rate is 780 percent.

Many times, consumers find their circumstances no better in the next pay period than they were in the last. They can't pay off the loan and simply roll it over; soon, they find themselves mired in a quicksand of debt.

Last year, according to the State Corporation Commission, 445,891 Virginians took out 3,372,103 payday loans, totaling $1.12 billion. The Center for Responsible Lending has found that 60 percent of these loans go to those who take out 12 or more per year. Translation: Some folks get hooked on payday loans.

Sadly, many payday lenders are clustered around military bases. A skyrocketing number of military personnel have had their security clearances yanked because of their debt, making them ineligible for deployment overseas. Officials attribute the problem to predatory lending and lack of financial wisdom among the troops. In response, the FY 2007 Military Authorization Act has a provision prohibiting charging military members more than 36 percent interest.

The payday lending industry cites satisfied customers and high demand as justification for its practices. Indeed, people without the safety net of a church or extended family may find themselves strapped when unexpected bills arrive. A short-term loan might be the answer--but why not limit payday lenders to the same 36 percent banks and others are permitted to charge?

Del. John O'Bannon, R-Richmond, was the patron of the bill to ban payday lending in Virginia. It was killed in committee on a 10-8 vote. He's not discouraged, though--he vows to bring it up again in the 2007 legislative session.

Virginia just opened the door to payday lenders in 2002. It's time to slam it shut again.

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Date published: 12/19/2006