SUPPORT PAYDAY LENDING REFORMS

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SUPPORT PAYDAY LENDING REFORMS

He who increases his wealth by excessive interest gathers if for one who has pity on the poor.” Proverbs 28:8

During biblical times, abusive lending practices were addressed by instituting strict standards, including banning the charge of interest to the poor (Exodus 22:25). Likewise, in the story of Zaccheaus, Jesus commended him for promising to repay the excessive fees he had exacted from the oppressed (Luke 19:8-9). Today, in modern times, predatory lending practices exploit low to moderate income people. This is both a legal issue and a moral issue.

The Problem:
The Bureau of Financial Institutions reports nearly 3 million payday loans were made to more than 387,000 borrowers in 2004, from 696 payday loan locations in Virginia. The Virginia General Assembly passed a Bill authorizing payday lending in 2001. This legislation 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. However despite these prohibitions, many Virginia borrowers are, in effect, renewing their loans and getting more than one loan at a time:

ܧ Many borrowers get back-to-back loans. The borrower pays off his loan and then immediately gets a new loan. Often, the borrower does this repeatedly. A report done by the Bureau of Financial Institutions indicates that the average payday loan borrower got 7 loans from each payday lender from whom he borrowed in 2003.

ܧ The borrower goes to a second payday lender for a loan to pay-off his first loan and eventually winds 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.

ܧ The average Virginian that borrows from a payday lender gets 12 payday loans per year. This is an estimate based upon the report from the Bureau of Financial Institutions and the payday industry group report. This means that the average Virginia payday loan borrower pays $840 to repay a 6-month $300 loan.

The Virginia Partnership to Encourage Responsible Lending (VaPERL) is a coalition working to reduce the dangers of predatory lending in Virginia. Members from organizations around the state include: AARP, Virginia Poverty Law Center, Virginia Interfaith Center for Public Policy, Housing Opportunities Made Equal, Richmond Better Business Bureau, Virginia Credit Union League, Virginia Organizing Project, and others. Our research and collaboration strongly indicate the need for reform. Explanations of four legislative recommendations follow, listed from most supported to least.

Solutions:

1. HB 619 (O’Bannon): Sunsets the Payday Lending Act and effectively does away with payday lending altogether. Sometimes, the simplest solution is the best.

Other limits and reforms will close the loopholes in the original legislation while allowing payday lending to continue under regulation of the Bureau:

2. HB 626 (Johnson): Increases the minimum loan term from 7 days to 60 days. This would give the borrower the opportunity to set aside some money so that they would not have to get another loan immediately. It would also effectively reduce the APR to a more reasonable rate by spreading the 15% fee over several months.

3. HB 225 (Jones): Requires a 30 day waiting period between loans. This will help break the cycle of debt that borrowers fall into by enforcing the no rollover provision. Passage of this bill would establish a common database that lenders would have to examine for outstanding loans before issuing another payday loan.

4. HB912 (Oder): Increases the minimum loan term from 7 to 15 days and allows only one payday loan at any given time, but only requires a 48 hour waiting period. Such a short time frame is not sufficient to avoid the debt trap. This bill also spells outs a repayment plan option, but it’s only offered after 60 days and by then, the borrower has already paid an exorbitant amount of interest.


Contrary to what the payday loan industry claims, this legislation will have no effect on payday lenders that seek to provide an occasional short-term solution to a borrower’s debt crisis. It will only affect those payday lenders that seek to trap desperate borrowers into multiple loans.

Center Priorities (.pdf)

Bulletin Inserts
Child Support (.pdf)
Environment (.pdf)
Housing Trust (.pdf)
Indigent Defense (.pdf)
Payday Lending (.pdf)
Minimum Wage (.pdf)

Advocacy Resources
Advocacy Guide (.doc)
Advocacy Portal (link)
Lending Info. (.ppt)
Richmond Map (.pdf)

For Small Groups
Eco-Stewardship (link)
Prayers for Creation (link)
Poverty Diet (link)

Policy Briefs
EITC (.doc)
TANF Child Support (.doc)
Payday Loans (.doc)
Healing Creation (.doc)
Child Ombudsman (.doc)
Affordable Housing (.doc)
Indigent Defense (.doc)
Minimum Wage (.doc)
Wage & EITC (.doc)
VA Tribes (.link)

Actions
Lending Petition (link)
Title Petition (link)
Wage Petition (link)

Reports
Budget Analysis (.pdf)
Food Stamps (.doc)
Lottery Study (link)

FAQ's (link)

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