Proposal would affect local lenders
RICHMOND - Virginia delegates have announced a compromise on new state payday loan restrictions that might protect both borrowers and lenders.
According to the compromise, borrowers would have longer to repay a payday loan but would be limited in how many loans they could get each year. They would also be able to set up extended payment plans and forced to wait longer between receiving each loan.
Lenders, in turn, cannot sue to collect on a loan until it has been in default for 60 days.
Industry officials have said another provision, a 36-percent cap on interest, would reduce profits to pennies and drive them out of the state.
"The notion that compromise comes in the form that prohibits companies from offering a product doesn't do anything but drive the product out of the state," said Jamie Fulmer, spokesman for Advance America, Cash Advance Centers Inc., the nation's largest payday lender.
Advance America has a branch in Lexington, one of two payday lenders in the Rockbridge area. The other, EZ Cash, is in Buena Vista. Neither could be reached for comment.
Members of the House of Delegates say they want to protect Virginians from getting trapped in debt, without putting the lenders out of business. Borrowers would be limited to one payday loan at a time and five per year, monitored by a database under the oversight of the State Corporation Commission.
Industry opponents got their 36-percent cap on the annual interest rate lenders can charge, but the legislation allows lenders to charge other fees similar to those already in place.
Borrowers would have twice as long to repay the loan. Currently the loans are due on the borrower's next payday -- typically two weeks -- but the new plan calls for a loan term at least twice the borrower's pay cycle.
A database would be put in place to track the loans to make sure an individual couldn't have more than one at a time and no more than five per year.
"People who need these loans need them right away, and because these may be one of the few sources of money for them, they are typically going to pay more for loans. But this is manageable," Del. Kenneth Melvin, (D-Portsmouth), said at a news conference.
Where before a $300 two-week loan would cost $345, under this proposal it would cost about $338 over four weeks.
Industry opponents, who have said a 36-percent cap was the only way to protect people, say they can support the new fee structure because the legislation limits the number of loans borrowers can get.
In 2006, about 434,000 people in Virginia took out nearly 3.6 million loans, meaning borrowers averaged eight loans apiece.
"We know that 36 percent was the easiest way to do it, but this is a different path to grandma's house, and as long as at the end of the day people can afford gingerbread cookies, we'll be OK," said the Rev. C. Douglas Smith, executive director of the Virginia Interfaith Center for Public Policy.
Industry officials say the provision that doubles the time borrowers have to pay off loans changes the whole dynamics of their product, which was intended to provide short-term cash for those with nowhere else to turn.
Virginia would become the only state to limit the number of loans individuals can take out annually.
A Senate committee Monday afternoon heard testimony on numerous bills to either cap the interest rate, repeal the law that allows payday lenders to operate or place other reforms on the industry. A subcommittee will sift through those proposals and is expected to have a recommendation next week.
House legislators said they hope the Democrat-controlled Senate, which has not been receptive to an interest rate cap, will support the compromise.
Emily Hulen of The Rockbridge Report contributed to this story
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