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Hole in the shark net

January 5, 2009 12:35 am

MAYBE YOU thought payday lenders had been more or less corralled. A law that went into effect New Year's Day put serious restrictions on these short-term loan brokers, measures designed to save people from a devastating spiral of debt. Alas, now it seems that many of these quick-cash outlets have weaseled their way around the new rules. The legislature may have to go after them again.

Payday loans are short-term (generally, two-week) infusions of cash theoretically designed to meet the needs of a low-income worker with an unanticipated expense: an old car to fix or an emergency medical bill to pay, say.

That sounds fine, which is why the General Assembly decided in 2002 to let payday lenders into the state. Realistically, though, these short-term loans very often entice people into a sticky spiral of debt from which they cannot get free.

Originally, payday loans came at a high price: annualized, their interest rates could soar to 391 percent. Often, people would have to take a second loan to pay the first, a third to service the second, and so on. Shortly after Richmond opened the door, there were more of these storefront operations in the state than McDonald's or Starbucks, and our fellow Virginians were $1.5 billion in hock to them.

After a two-year battle, the General Assembly passed a law to rein in the industry. The law caps interest rates at 36 percent, mandates one loan per person at a time, and allows only 10 such payouts per person per year. (Last year, nearly 100,000 Virginians carried 13 or more of them.)

Having their cash cows corralled thus has inspired payday lenders to new heights of creativity: They've gone to the State Corporation Commission and gotten permission to offer a different kind of loan--open-ended, so it doesn't fit the "payday" definition in the law. Now this work-around will again entice vulnerable Virginians to grab a quick fix with long-term consequences.

Many states ban payday lenders altogether, and Congress protects military members from their worst abuses. Let the General Assembly take up the issue again. Put the misery makers' end around on borrowed time.