Legislation to reform payday lending fails

Date published: 3/1/2007

ANYONE can have a financial emergency. A car breaks down, a kid gets sick, the roof springs a leak--and suddenly there's a need for quick cash. That's when some people, with little or nothing in savings, turn to payday lenders.

Virginia opened the door to these quick-loan artists back in 2002. But this year, troubled by stories of good working people pulled into a cycle of debt, some General Assembly members tried to outlaw or reform the industry. Alas, those efforts failed in the closing minutes of the Assembly--and Virginia's the poorer for it.

Proponents of payday loans point out that the loans fill a need: The unsecured cash outlays are intended to help people in a pickle make it to the next payday. Opponents, however, object to the loans' exorbitant interest rates: Considering both the flat fee charged and the short term of the loan, these can hit a piratical 780 percent on an annual basis. Moreover, the ease of obtaining such loans creates an unhealthy dependency in some borrowers, drawing them into a spiral of debt that leads to bankruptcy.

Payday lenders often target the young, who are inexperienced in financial matters, and the poor, who lack alternative resources. Congress in 2002 chased payday lenders from around military bases because of their harm to young military families.

The last bill standing to reform the payday-loan biz in Virginia was the handiwork of Sen. Richard Saslaw, D-Fairfax. It appeared headed for Gov. Kaine's desk, having cleared the House and the Senate. But Mr. Saslaw, concerned by the governor's public musings about capping interest rates on the loans, persuaded the Senate to rescind its approval at the last minute.

Mr. Saslaw explained that his intention wasn't to kill the payday-loan industry, which a cap might accomplish, but merely to domesticate it. "Next year nobody's going to put in a reform bill," he huffed. "The bills put in will be the repeal bills or interest-cap bills, and they don't have a prayer in the world of getting out of either committee. Essentially, probably for the next decade, that industry will have no regulation at all."

Mr. Saslaw's bill would have usefully restrained payday lending in Virginia. While it fell short of the ideal--abolition--it at least would have set some safeguards for state residents.

Payday-lending overhaul should return as legislation in the 2008 General Assembly. This time, the deal should be inked.

Date published: 3/1/2007