Payday-loan decision involved Valley case
The Virginia Supreme Court, in a unanimous decision issued on April 21, ruled that the widespread practice of payday lenders in Virginia of having a borrower repay a loan and immediately take out a new loan for the same amount, commonplace prior to 2009 statutory amendments, violated Virginia law prohibiting payday lenders from refinancing, renewing, or extending such loans.
The decision was issued in a case brought by Wilma L. Ruby, an elderly Shenandoah County resident, against Cash Advance Centers, a payday lending company that operated a store in Woodstock. She was represented by a local Harrisonburg attorney, Grant Penrod, of the law firm HooverPenrod, on a pro bono basis. Penrod had agreed to represent her without charge after she had sought free legal assistance in dealing with the payday lender from the local legal aid society, Blue Ridge Legal Services.
From March 2005 through November 2007, Ruby took out 33 monthly loans ranging from $200 to $500 from the payday lender. On a fixed monthly income of $624, Ruby couldn’t afford to pay her loan in full and pay her bills, the court decision states. So she would pay off her loan and associated finance charges, take another loan for the same amount from the lender, then repeat the cycle again a month later. By calling each of these transactions a new loan, instead of a refinancing or renewal of an existing loan, the payday lender sought to evade the interest rate ceilings set by state law, and instead imposed interest charges of approximately 190 percent, well in excess of what was allowed even under the Payday Loan Act. The Virginia Supreme Court found that this illegal practice trapped borrowers like Ruby “in a vicious cycle of debt”.
According to Jay Speer, executive director of the Virginia Poverty Law Center in Richmond, there may have been as many as 9 million payday loans issued between 2002 and 2009 in violation of the law as applied by the Virginia Supreme Court.
“We are absolutely thrilled with Grant Penrod’s successful representation of Ms. Ruby, and we are immensely grateful for his generous commitment of his time and talents on her behalf,” said John Whitfield, executive director of Blue Ridge Legal Services. “It is heartening to know that the Virginia Supreme Court sees this predatory lending practice for the unconscionable debt trap that it is.”
A copy of the decision is available from the Virginia Supreme Court’s website, at www.courts.state.va.us/opinions/opnscvwp/1100287.pdf.
In retrospect: Many payday loans were illegal
The Virginia Supreme Court ruled last week that when a payday lender “makes a loan to a borrower immediately after the borrower repays in full a previous loan,” that second loan was made in violation of the 2002 Virginia Payday Loan Act.
An estimated 9.2 million of those type payday loans were made between 2002 and 2009, when a new law passed by the Virginia General Assembly forced payday lenders to wait one day before making a new loan to a borrower. The Supreme Court ruling didn’t address whether loans made the next day could also be considered an unlawful loan refinancing or extension.
“I am pleased that the Virginia Supreme Court recognized that payday lending in Virginia has largely been an illegal scam,” said Jay Speer of the Virginia Poverty Law Center.
Advocates of payday-loan reform feel the high court’s decision should put legislators on notice that the predatory lenders cannot be expected to follow the law when “reform” measures are passed.
“The only way to effectively regulate predatory lending is to return to interest rate caps that worked well before the General Assembly started creating all these exceptions for payday lenders and others,” said Dana Wiggins, coordinator with the Virginia Partnership to Encourage Responsible Lending.
