By Trevor Brown/staff •
Published in Stauton News Leader• May 27, 2010
STAUNTON — City council once again is looking to lead a statewide charge to convince legislators to stop "predatory" practices by payday lenders.
Council will discuss adopting a resolution today to ask the state to impose an interest rate cap of 36 percent, calculated as an effective annual percentagerate, that includes fees and charges that payday lenders require. Councilman Bruce Elder, who is spearheading the efforts on council along with several state advocacy organizations, said a new law is needed because past legislative efforts failed to prevent payday lenders from taking advantage of financially distressed residents.
"It takes people that are economically fragile in the first place and it just gives them a little bit of false hope that they can pull out of it," Elder said referring to payday lenders. "What it really does is it spikes them into poverty."
In 2007, Staunton's council began a movement —eventually supported by about 60 other localities across the state — to urge the legislature to reform payday lending practices to prevent the institution from charging excessively high interest rates. The General Assembly in 2008 then passed a law capping the rate at 36 percent, however, it did not include fees and other charges associated with the loans.
Ben Greenberg, legislative director for the Virginia Organizing Project, said because the bill did not include fees and charges — such as the $20 per $100 fee or the $5 verification fee — lenders are essentially offering interest rates that climb well above 200 percent.
"Ultimately, the (2008) legislation fell short,"Greenberg said. "While the legislation provided
some protection, there are still unconscionably high interest rates that can destroy (the customers) financially."
Although many nonprofit organizations, such as the Virginia Organizing Project, Center for Responsible Lending and the Virginia Poverty Law Center, are pushing the request for greater reforms, the issue has been met with staunch resistance from industry groups.
Jamie Fulmer, director of public affairs for Advance America, one of the larger payday lenders, said the charges by critics of the industry are based on fundamental misunderstandings of the services they provide. He said claims, such as there are viable alternatives to borrow money in a pinch, are not true, adding using a payday lender is often less expensive than having to bounce a check.
In addition, Fulmer said if the General Assembly passes what the council resolution is asking, it
would drive payday lenders operating in the state out of business. He said the 2008 regulations alone caused many of Advance America's locations to close their doors, and more restrictions would cause hundreds of layoffs.
"If this were to happen, there would be even fewer options (for people to borrow) in what is already a limited landscape," he said. "This option could also force people to turn to unregulated places like offshore Internet loans."
Jay Speer, executive director of the Virginia Poverty Law Center, however, said payday lending is not a safe method for many residents to use. He said his organization, which is a not-for-profit focusing on legal issues affecting low-income residents, routinely sees people fall into what he called a "debt trap" as they continue to borrow and interest fees pile up.
"For a lot of people facing a debt crisis, the last thing they need is more debt," he said. "To me, they are not providing any kind of service, and it is nothing more than an excuse to rake people over the coals with high interest rates."
Elder said it is not an outlandish request for legislators to consider the revised 36 percent cap
because many neighboring states, as well as the District of Columbia, have instituted much more
restrictive caps than Virginia. In addition, some states, such as Georgia, go as far as making it
illegal to make a payday loan.
"Doing what is legal on Greenville Avenue in Staunton," Elder said, "is punishable by five years in prison in Georgia."
Council's resolution would apply to other types of practices, including car title loans. It also suggests the legislature change Virginia's state code to reflect the Military Lending Act, a federal law that places a 36 percent cap for payday, auto title and other loans made to military families.
If council adopts the resolution today, copies of the requests will be sent to legislators and localities a cross the state. Elder said he hopes even more cities, counties and towns support the resolution than the more than 60 that adopted the resolutions of 2007 and 2008. He said the issues have seen bipartisan support in the past and, with the support of other localities, his goal is for the General Assembly to realize the importance of the issue during its 2011 session.
Greenberg, who has worked on legislative issues for the Virginia Organizing Project since 2006, said it is hard to be too optimistic that legislators will enact the changes during the next session given the resistance from the industry and other supporters that has been presented in past years. However, he said a widespread push by the localities to push for more reform could sway the legislators.
"I think it is a matter of the legislature listening to the public and hearing the concerns of the
localities," he said. "But the more support we can build at the local level and the more information we can share, the more likely it is to occur."