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Norfolk aims to curb number of payday lenders

May 16, 2006 - Norfolk, Virginia

Like gas stations and convenience stores, payday lenders tend to spring up wherever consumer traffic is heavy.

"We're located in malls and near big-box retailers because that's where our customers are," said Wayne "Jabbo" Covert, vice president for government affairs at Check into Cash Inc., a Cleveland, Tenn., lender with 21 stores in Hampton Roads.

The proliferation of payday lenders in Norfolk has been hard to miss. Since 2002, when Virginia opened its doors to providers of the short-term, high-interest loans, stores have opened in several of the city's shopping centers and along major corridors including Virginia Beach Boulevard, Little Creek Road and Tidewater Drive.

The city, however, is seeking to curb their growth by barring new stores from opening in large shopping centers and requiring a special exemption for lenders seeking to open stores in other commercial areas. Existing payday-lending stores would be allowed to continue doing business.

The proposed change in Norfolk's zoning ordinance also would apply to check-cashers, auto-title lenders and retailers of used merchandise. The change would exclude antique stores from the restrictions. Used-car dealers and pawnshops would not be affected.

Payday loans are short-term, high-interest cash advances made to individuals who have a checking account and a steady source of income. When making a loan, lenders take a post dated check for the loan amount plus the interest as collateral. If a borrower doesn't return with a cash payment when the loan is due, the lender cashes the check.

In Virginia, licensed lenders are allowed to make loans of $100 to $500 for one to four weeks. They can charge as much as $15 for every $100 lent, which works out to an annual percentage rate of 390 percent for the typical two-week loan.

Paul R. Riddick, a member of the City Council, expressed concern Monday about the increasing number of payday-lending stores in Norfolk and the financial harm that the loans can cause.

"From my perspective, we have so many people looking for these to carry them through to the next paycheck," said Riddick, whose ward takes in the southeastern area of Norfolk. Many of the borrowers, he noted, are lower-income individuals and members of the military.

The proposal to restrict the opening of payday-lending stores, check-cashers, auto-title lenders and used-merchandise retailers was approved by the city's planning commission in March. The council has scheduled a public hearing on the measure for 7:30 p.m. May 23.

Norfolk's attempt to curb the spread of payday-lending stores has been taking shape amid similar efforts by several other cities. In October, Jacksonville, Fla., imposed several restrictions on payday lenders, including an interest-rate ceiling on their loans and a prohibition against lenders contacting the commanding officers of military borrowers who default on a loan. Jacksonville also barred lenders from opening new stores within five miles of a military installation.

This year, San Francisco imposed a moratorium on new payday-lending and check-cashing stores while the city considered ways to limit the proliferation of these businesses in particular neighborhoods. Meanwhile, Phoenix and a handful of other Arizona cities have sought to restrain the growth in payday-lending stores.

In a report released this month, Virginia's Bureau of Financial Institutions said the volume of payday lending in the state approached $1.2 billion last year, an increase of 21 percent from 2004. The number of loans, it said, rose 16 percent to 3.37 million. Meanwhile, the number of borrowers climbed 15 percent to 445,891.

The report by Virginia's banking regulator doesn't break down the volume of lending by municipality, but it does list the store locations of licensed lenders. At year-end 2005, Norfolk had 46, an increase of three from a year earlier. Among Hampton Roads cities, Virginia Beach had the greatest number of locations with 67.

In Norfolk, the Navy-Marine Corps Relief Society, a charitable organization, repeatedly has called attention to the difficulties that households of young enlisted personnel encounter when using payday loans. Also, consumer advocates have campaigned to eliminate the lending in Virginia, citing the rising number of borrowers who use more than a dozen of the loans a year. Because of the triple-digit interest rates, they argue, consumers who use the loans repeatedly are vulnerable to being overwhelmed by the interest costs.

However, attempts in the General Assembly to abolish payday lending in the state have stalled amid heavy lobbying by the industry and its opponents.

Covert of the Check into Cash lending chain played down the effects that high interest rates have on frequent users of payday loans. Many of Check into Cash's customers, he said, use 7 or 8 loans over a year to 18 months because of a job loss, a divorce or other problem. Once the problem is resolved, they stop using the loans, he said.

Check into Cash, he said, has adjusted to efforts by cities to limit the concentration of payday-lending stores in particular areas. However, Covert contended that municipalities should allow market forces to determine the number of stores and their locations rather than zoning laws.

"All we are doing is responding to demand," he said. "We build where the customers are."

News Source

The Virginia-Pilot, Tom Shean, Staff Reporter

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