Payday lending now has 1 billion dollar foothold in Virginia
May 4, 2006 - Richmond, Virginia
Payday lending became more entrenched in Virginia last year as the volume of short-term, high-interest loans surpassed $1 billion, according to data released by state banking regulators Wednesday.
The lending volume jumped 21.5 percent to $1.2 billion, while the number of borrowers climbed 15 percent to almost a half-million individuals in 2005, the state's Bureau of Financial Institutions said in its annual report of payday lenders and check cashers.
Payday lenders have promoted the high-cost credit as a convenient way for cash-strapped consumers to raise a few hundred dollars until their next paycheck. A lender accepts a check from the borrower for the amount of the loan and the interest. If the borrower doesn't return with a cash repayment, the lender cashes the check.
In Virginia, lenders are allowed to charge $15 for every $100 of a payday loan, which works out to an annual percentage rate of 390 percent for the typical two-week loan. The maximum amount of a loan is $500; the maximum length of a loan is four weeks.
Data in the Bureau of Financial Institutions' report are likely to spur efforts already under way to curb or eliminate payday loans in Virginia. The growth of payday lending and the financial difficulties of their users have been contentious issues in the General Assembly in recent years.
During the Assembly's 2006 session, "there was huge pressure on legislators to do something, and the situation hasn't gotten any better," said Jay Speer, executive director of the Virginia Poverty Law Center in Richmond and a vocal critic of the loans.
One figure in the report that attracted the attention of consumer advocates was the number of borrowers using more than a dozen payday loans during the year, which climbed 19.4 percent to 90,859 borrowers. That was one-fifth of the 455,891 total borrowers for 2005. The number only counts borrowers who get their loans from a single payday lender.
It probably is understated because many borrowers take out payday loans from more than one lender, said Jean Ann Fox, director of consumer protection at the Consumer Federation of America.
Consumer advocates have viewed borrowers using several loans a year as particularly vulnerable to being trapped by the soaring cost of interest on their loans.
The Community Financial Services Association of America, a trade association in Alexandria for payday lenders, said Wednesday that its spokesman was traveling and unavailable for comment on the latest lending data for Virginia.
The number of payday loans made throughout Virginia last year rose 16 percent to 3.37 million, while the number of lending locations increased 9 percent to 756, according to the Bureau of Financial Institutions.
The double-digit increases in loans and borrowers may have been due partly to lenders having stores open for a longer period of time, Fox said. "They now have a set of customers who have become repeat borrowers," she said.
According to the state regulators' report, payday lenders stepped up their efforts to recover unpaid loans last year as losses from uncollectible loans rose 18 percent to $28.5 million. The number of borrowers sued by lenders totaled 9,039, a 31 percent increase from 2004.
The Bureau of Financial Institutions, a unit of the State Corporation Commission, began tracking payday-lending activity four years ago after the General Assembly legalized the lending in Virginia.
The Virginia-Pilot, Tom Shean, Staff Reporter
Related Stories - Virginia
- Who would span the payday lending gap? [December 17, 2006]
- Payday loan measure killed in committee [December 6, 2006]
- Avoid the loan sharks [December 4, 2006]
- Virginia delegates push payday loan reforms [October 7, 2006]
- The Payday Mayday: Faith communities join to curb predator practices [September 22, 2006]
- Virginia trying to set spending limits [August 13, 2006]
- Lawmaker takes interest in car-title, payday loans [August 4, 2006]
- Virginia payday loan reform is past due [May 24, 2006]
- Norfolk aims to curb number of payday lenders [May 16, 2006]
- Payday lending now has 1 billion dollar foothold in Virginia [May 4, 2006]
- Military loses to payday lenders [February 20, 2006]
- Payday-lending bill is pulled [February 14, 2006]
- Payday-loan repeal sought [January 26, 2006]
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