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Recent law is curbing payday lending
Payday loans in Virginia this year are down almost 85 percent from previous years.
By DEL. GLENN ODER, The Virginian-Pilot - 7/3/2009
PAYDAY LENDING is down in Virginia, and payday lenders are closing up shop and leaving.
I sponsored the 2008 Payday Loan Act, HB12. It enacted important restrictions on payday loans to reduce rollover loans and multiple loans that were trapping people into an inescapable cycle of debt. The bill won bipartisan support.
The regulations and the statewide database established through this legislation went online in January 2009. Its impact on ending the excesses and abuses in the industry has been exactly what I’d hoped.
This year, the number of Virginia payday lenders has dropped from 82 to 55, or 33 percent, and the number of lending locations has decreased from 832 to 540, or 35 percent. Payday loans in Virginia this year are down almost 85 percent from previous years.
Some people have said that the decline in payday lenders and their activities is a mere coincidence or related to the economic downturn and unemployment. The facts say otherwise.
Nationwide, payday loans are down only about 7 to 10 percent in states that did not enact any significant legislation. The precipitous drop in payday loans in Virginia is far beyond what other states are seeing, and it’s clearly due to something other than the economy.
Although my preferred method of ending payday lending in Virginia is to impose a 36 percent interest rate on all payday loans, a majority of the legislature has been unwilling to impose such a cap. However, my bill to limit borrowers to one loan at a time, extend the loan repayment period to two times a person’s pay cycle, require voluntary extend ed payment plans, limit loans to no more than five loans in six months and track payday loans through a statewide database has reduced abuses by the industry.
The result of these new regulations is that a significant number of lenders are unwilling to operate in Virginia.
The newly created database prevents payday lenders from issuing multiple loans to the same person and from issuing a new loan to a customer the same day an old loan is paid off. These tactics and practices were critical to the survival of the industry.
Before the new regulations, the payday lending industry averaged almost 300,000 loans per month in Virginia. Since the new law took effect, payday loan activity decreased to 80,000 transactions in January. That number shrank to 32,000 in February and has re mained near that level.
Additionally, the first month the database was in operation, 7,605 payday loans were blocked. Multiple loans and same-day rollover loans have now been stopped.
Some think we should go farther and cap interest rates and fees or outlaw payday lenders in Virginia. They are preaching to the choir. The votes blocking those initiatives have not been my votes.
While we admittedly would like to have done more, the restrictions enacted in HB12 were a significant step forward in protecting consumers and ending payday lenders’ abusive and predatory practices in Virginia.
Concern remains that the open-end credit statute and the car title lending industry create serious “debt traps” in Virginia. The complexity of calculating the finance charge on an open-end loan makes it virtually impossible for the average person to determine his actual cost, because the payment amount, the total interest charge or total of payments cannot be determined at the start or inception of the loan.
I’ve recently learned from another state that four out of five title lenders examined by its state bank commissioner were incorrectly applying charges to consumers’ accounts.
As payday lending regulations drive predatory lenders to find new loopholes in the Code of Virginia, the General Assembly must continue to respond by providing more consumer protections against these lending practices.
Glenn Oder, a Newport News Republican, represents the 94th District in the House of Delegates.
