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SUPPORT PAYDAY LENDING REFORMS
Virginia Interfaith Center Briefing
Payday Loans are a Threat to Businesses
The Virginia General Assembly passed the Payday Loan Act in 2001. The Act prohibits payday lenders from renewing, refinancing, or extending a payday loan. It also prohibits lenders from making more than one loan at a time to a borrower.
Download a bi-partisan Payday Lending Resource <.pdf>
Why are 76,000 Virginians getting more than 13 payday loans a year?
Many borrowers get back-to-back loans. The borrower pays off his loan and then immediately gets a new loan. The borrower feels compelled to get another loan after he has paid the previous loan because two weeks is not enough time to save enough money to repay the loan and the interest and still have enough left over to pay for necessities like the rent and groceries.
Why are there so many loans to the same borrowers?
The Bureau of Financial Institutions reports that nearly 3 million payday loans were made at the 696 payday loan locations in Virginia last year. Those loans were made to more than 387,000 borrowers, so the average number of loans per borrower was more than 7. But the situation is even worse because these numbers don’t take into account the borrowers that go to more than one payday lender. Many borrowers go to a second payday lender for a loan to pay-off the first loan and eventually wind up with two, three or more outstanding loans at the same time. A study funded by the payday industry trade group reported that payday customers use an average of 1.7 different payday lenders per year. This means that the average number of loans per borrower last year was more than 12. If a payday loan borrower borrows $500, twelve loans would cost the borrower $900 in interest for a six month loan.
What reforms would assure compliance with the Payday Loan Act?
The following reforms would stop the widespread practices that are circumventing the restrictions in the Act against renewing loans and making more than one loan at a time to a borrower:
1. Increase the minimum loan term from 7 days to 60 days. This would give the borrower the opportunity to set aside some money so that he would not have to get another loan immediately.
2. Prohibit a payday lender from making a loan to a borrower that already has an outstanding loan with another payday lender.
3. Require a waiting period between loans.
The Virginia Interfaith Center is part of the Virginia Coalition for Responsible Lending.
Virginia Interfaith Center Briefing
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