THE TOUGH CUSTOMER- Half a loaf? Does lending reform go far enough?

Wags say a good compromise is one that leaves both sides unhappy.

By that standard, the compromise on payday lending reform the Virginia General Assembly reached in the waning days of its 2008 session last week approaches perfection. 

But what it really means is the controversial practice– "predatory lending" in the parlance of consumer advocates and other opponents– will continue to be a bane, or depending on your perspective, a boon, for Virginia consumers for the foreseeable future.

When I first wrote about Estelle Williams' car title loan and its 240 percent annual interest rate last year ("Predatory practices? Car title lender back-pedals," December 13), I was amazed to discover that such high-interest loans were legal in Virginia. According to Williams, she paid installments on her $200 loan for a year and a half, allegedly amounting to about $1,000 in payments, but made hardly any headway in paying off the principal. So she finally stopped paying, and her car was repossessed.

After I began asking questions, however, the lender cancelled her loan and returned her car.

Because there were questions over the legality of this specific loan, I asked Bob McDonnell, the Virginia Attorney General, to take a look. So far, his office has not announced any action.

As I delved deeper into car-title lending and its much more ubiquitous cousin, payday lending, I found out that becoming trapped in an unending cycle of high-interest debt is common, and that despite years of trying to enact reform, the General Assembly has been unable to get a handle on the problem.

This year, politicos from the Governor on down seemed determined to do something on payday lending, even if only for the sake of finally doing something. ["Payday lenders: Beating back rate caps in Richmond," January 31].

If you think this $1.5 billion business doesn't affect our bucolic university community, think again. There are nine payday lenders in the Charlottesville area listed in the Yellow Pages, and at least two car title lenders in the city that I'm aware of.

The consumer lending industry contends that it fills a need for people who have no place else to turn for help in a financial emergency.

Jay Speer, executive director of the Virginia Poverty Law Center in Richmond– one of the consumer groups leading the fight for payday lending reform– calls that argument "sheer unmitigated nonsense."

But even alleged "sheer unmitigated nonsense" gets a respectful hearing in legislative halls when it's backed by $552K in political contributions.

Speer says that although there are some good parts to the proposed reform, it fails to go far enough. For example, the new law would create a database to track loans and would limit a borrower to one outstanding payday loan at a time. After a borrower's fifth loan in a year, other restrictions would kick in, but Speer contends these will probably do little good.

The industry is "so devious, so underhanded," he says, they have probably already figured out a way around the restrictions. 

Speer said he hoped Governor Kaine would amend the bill to make it tougher and send it back down to the General Assembly for a re-vote.

Kaine has scheduled a trio of "town halls" around the Commonwealth this week to discuss the General Assembly session, including one in Staunton. "A lot of people will be there telling him he needs to do something with this bill," Speer says.

The ultimate question of whether this compromise is better than no reform at all is one Speer is unwilling to answer at this point.

If this bill becomes law, he does note, it will put further reform on the sidelines for at least the next several years.  

"We'll have the almighty database," Speer says, and there will be two or three years of collecting and analyzing data before anything further can be done.

Last, but not least, the bill does nothing to address car-title loans– the kind of loan that vexed Williams– that are gaining in popularity. For many people struggling to make ends meet, Speer says, the loss of their automobile, which they need to get to work or to a doctor's office, can be devastating.

Got a consumer situation? Call the Hook newsroom at 434-295-8700x405 or e-mail the Tough Customer directly.


Payday loans are great and really help out in those situations that can't wait until next payday.

I think that the payday lending industry should be left alone and other issues should be addressed.

These stores are no different than any other business. If people used them wisely and responsibly then there would NOT be a problem.

The people get themselves in debt---not the stores! So, put the blame where it belongs!

Kaine needs to throw this bill out and not sign it and leave the payday lending industry alone!

'if people used them wisely'

The issue is that people try to use them wisely... like credit cards. My husband has been in the collection business for years and there is an entitlement mentality that floats around -- "I can spend MY money however I want." However, that money when you walk out is NOT yours, plastic or cash. It is someone else's. You have to pay it back... and a whole lot more in this case.

When you have to pay back nearly 4x the amount you borrow for just a short week... this is thievery. It is unjust and immoral and wrong -- predatory practice. There is no way a bank would get away with this.

When individuals are not taught good financial habits, good money management -- and these companies exploit that -- fingers can point both ways. Some people don't care and rely on these places like a junkie getting a fix. Some people don't know any better. Some people use occasionally because they are in a tight spot. It is not up to the government to fix because they are busying themselves with too many other little projects, but WE CAN stop the bleeding where we see it.

We don't need 16 Starbucks in town and we for d*** sure don't need this many fast-cash-cows in town either. Put a cap on it and let 'em whine.

I agree that the payday loan industry should be left alone. The time the General Assembly wasted on this, is shameful. If this bill passes, then next year I hope they limit the amount of lottery tickets a person can purchase, regulate the rent-to-own business, pawn shops, bank charges, credit card fees. But then, that almost sounds like communism doesn't it! Precisely my point! Let me decide how and where to spend my money, it isn't coming out of anyones pocket but mine, and of course the banks pocket if a loan prevents a check from bouncing. This whole issue has been completely ludicrous. The so called do gooders get a salary to lobby against this issue. Guess who pays it? People that contribute to their website, etc. asking for donations. Get Real and serve God by reaching out to spread his word, not to have your venom spread all over the news media. I can only imagine what it will do to people like me that choose payday loans. I am educated, smart, and have a good income, so I do know what I am doing when I get an advance.

The solution to this is not one thing but several. First, The schools need to TEACH financial responsibility to ALL students as a requirement of graduation. They need to understand that these loans are a last resort and that the failure rate is high because of the gouging. Next Churches should set up funds for their parishoners like the old days, and third, if we limit the loans for a year and watch we might just find that without this easy way out people will be more responsible AND some companies will realize that they can still make a profit at a more reasonable rate.

I think that until then there should be a standard big print contract that makes people sign and affirm that they know how bad they are getting hosed.

Lana - I had not made the connection between God and payday loans, can you expand a little? Also, what is it like working for a payday lender? Who are you seeing coming in to get the loans?

The connection between God and payday loans began with the Virginia Interfaith Center and associate office for the evangelical Lutheran Church. I think you can pull it up on your pc at

Credit cards, car payments, and mortgages put far more people into a “cycle of debt” than payday loans ever will. Credit is the foundation of our economy’s growth. Interfaith seems to take issue solely with those industries that provide credit to people with lower incomes. I think they have just as much right to credit as anyone else. Yet here's this article wondering if they haven’t gone far enough to deny people’s access to credit.

What doesn't get reported by the media is that there are very few complaints by actual customers using the service. We say thanks but no thanks to efforts to save us from ourselves!!

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