Former Gov. Tim Kaine signed a much-trumpeted reform of payday lending in 2008, but loopholes in the industry-written law were quickly exploited by lenders, who have since moved on to other high-interest loan products that have proven to be highly marketable in the midst of the ongoing economic slowdown.
Staunton City Councilman Bruce Elder led a grassroots effort in 2007 and 2008 that helped draw attention to the issue by getting more than 60 local governments to sign on to a resolution calling for the General Assembly to move toward substantive reform. Elder is back at it again, leading a push that has more than 50 localities engaging state lawmakers to pass a hard interest-rate cap on loans.
“A couple of years ago, i think what you saw is that there were still people who thought that the industry had some legitimacy and that they were providing a good service. Now I think you can look back and say that they weren’t negotiating in good faith, that the industry continues to produce a loan product that preys upon people on fixed incomes, people on disability incomes and Social Security incomes, it preys on financial illiteracy in minority communities,” Elder said.
“If we’re looking to rebuild a weakened economy, we have to rebuild it for everybody,” Elder said.
The resolution passed first by Staunton City Council in May has localities asking the General Assembly to impose a 36 percent cap on interest and fees associated with loans. The annual percentage rate on payday loans, car-title loans and related loan products is in the 300 to 400 percent range.
The industry markets its products as being low-cost and hassle-free, attracting consumers who either don’t want to go through credit checks or are afraid that their credit would disqualify them from being able to access more traditional loan sources, said Dana Wiggins, the responsible lending coordinator at the Richmond-based Virginia Poverty Law Center.
“These lenders are on television, on the radio, nearly every hour of the day. They know how to target people. They know how to push those buttons and get people to come to them,” said Wiggins, who notes that it’s not just those on the economic fringes making up the customer base these days.
“With the turn in the economy, more and more middle-class people are seeking out these loans as a quick fix, and they’re realizing how onerous the terms are for these loans. And the people who are more middle class who are calling our hotline – they’re just totally shocked. They think these loans should clearly be illegal,” Wiggins said. “They get the loans, they look at the storefront. They say, There’s a storefront, they’re on a main street in my town. You would think is being condoned by the government because they’re out in the open and not some back alley. But after being in the loan and not being able to pay it off because of how high the interest is, they’re like, How is this even legal? They just really had no idea.”
There’s another impetus for change, then. You have the localities banding together again, as they did in 2007-2008, and now you have a new group of disaffected consumers. “As more people get to understand the industry and how it works, I definitely see a shift in the direction of taking stronger action,” Wiggins said.
The tough part to the effort, said Ward Scull, the cofounder of the Newport News-based Virginians Against Payday Loans, is whether the General Assembly gets it.
“When I got involved in this, I never realized it would take so long to get this squared away in Virginia. Social-reform legislation apparently takes a lot longer than I ever thought it would,” said Scull, a moving-company executive who with retired local-government official Mike Lane launched Virginians Against Payday Loans in 2007.
Scull applauds the efforts of Elder to put pressure on state legislators, and has hopes that the General Assembly will take action to limit interest rates and fees in its 2011 session.
“Hopefully legislators will listen to what their constituents are saying. 2011 is an election year. Hopefully this session they’ll do the right thing for the right reasons,” Scull said.
Story by Chris Graham. Chris can be reached at [email protected].