Tawan Gray of Allied CashAdvance in Spotsylvania County hands out a payday cash advance in a transaction last year. SUZANNE CARR ROSSI/THE FREE LANCE-STAR

- SUZANNE CARR ROSSI/THE FREE LANCE-STAR

Whose Golden Rule Will Rule?

Date published: 1/23/2008

RICHMOND--Do Virginians really need payday loans? A new study from Virginia's southern neighbor proves that states that outlaw predatory payday-lending practices do not put their citizens in a credit crunch. In fact, there is no negative effect on the community.

The University of North Carolina Center for Community Capital drafted the study for the North Carolina Commissioner of Banks. It concluded that "the absence of storefront payday lending has had no significant impact on the availability of credit for households in North Carolina."

Everyone seems to agree that low-income Virginians need access to credit. But the high-interest debt that payday lenders peddle is like throwing a poor family into a pit with a spoon and telling them to start digging until they get out. The more the family digs, the more difficult it becomes to free themselves. Payday loans require a borrower to write a bad check for up to $575 for a $500 loan ($500 plus a $15 fee for every $100 borrowed, which the lender keeps for itself). The company holds the check until the customer's next payday, when he or she either pays off the $500 loan or the lender cashes the check. When a struggling family is unable to pay the $500 back they will often write another $575 check to payday lenders for another $500, thus digging deeper and deeper, at 390 percent APR interest.

For five years, the Virginia General Assembly has heard payday lenders claim that lowering their 390-percent interest rates would cause them to close shop, leaving citizens with nowhere to turn. But more than 55 credit unions refute the notion that lenders cannot make money at 36 percent, and even the bankers seem to be saying that the ingenuity of those vested in the community would fill the gaps. And the bankers are not alone.

Many states, including the District of Columbia, have either capped rates, or are trying to repeal anemic reforms that do virtually nothing to protect the working poor. In Virginia, more than 50 local governments have added their voices to nonprofit service providers, businesses, and a bipartisan gathering of elected officials in asking for a 36 percent cap on payday loans. Congregations in the commonwealth are unusually unified in asking the state to cap payday-loan interest rates through a faithful pledge campaign.

Read more stories about Fredericksburg
Date published: 1/23/2008

Most recent reader comments: