The Payday Mayday: Faith communities join to curb predator practices
September 22, 2006 - Richmond, Virginia
"He who increases his wealth by excessive interest gathers it for one who has pity on the poor." - Proverbs 28:8
Predatory lending is not new. 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 (Luke 19:8-9), Jesus commended him for promising to repay the excessive fees he had exacted from the oppressed.
Today, in modern times, predatory lending practices exploit low- to moderate-income people by charging as much as upward of 780 percent on a one-week payday loan. This is both a legal issue and a moral issue. Therefore, all persons of faith are called to express their values in conversations about the predatory lending problem in Virginia.
Anita Monti, payday borrower, tells this story: "I felt like I was in a stranglehold each payday. After a while I thought, 'I'm never going to get off this merry-go-round.' During this time, I got a promotion and a raise, but I never saw any of that money. It all went to pay the fees on my loan."
Anita had to turn to her church for help paying her rent after falling behind with payday fees.
The Bureau of Financial Institutions reports that in 2005, more than 3.3 million payday loans were made to more than 445,000 borrowers from 756 payday loan locations in Virginia. In that year, the dollar amount extended to payday borrowers crested well above the $1 billion mark in Virginia.
All of these numbers are up exponentially since the Virginia General Assembly passed a bill authorizing payday lending in 2002. 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:
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. More than 90,000 borrowers received 13 or more payday loans in 2005.
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.
The Center for Responsible Lending reports that 99 percent of payday borrowers are "chronic users" and that the average amount paid back on a $325 loan is $800!
Virginians need protection from the harmful targeting practices of payday lenders. Victims face threats of bankruptcy, eviction and repossession--all of which complicate their already challenging financial situations. Maryland and West Virginia have never allowed payday lending. Georgia and North Carolina once allowed payday lending but have now eliminated it.
Virginia should be next. Delegate John O'Bannon has proposed repealing the Payday Loan Act of 2002. This would halt payday lenders' ability to charge exorbitant interest rates and bring them under the current Virginia statute that limits small loan APRs to 36 percent. This bill (HB 619) was carried over last session but is expected to return in 2007.
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.
The Virginia Partnership to Encourage Responsible Lending (VaPERL) is a coalition working to reduce the dangers of predatory lending and encourage responsible 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, CHIP of Virginia, Legal Aid Justice Center, Virginia Organizing Project, Virginia Citizens Consumer Council, Piedmont Housing Alliance, Virginia Muslim Coalition for Public Affairs, Peninsula Community Development Corporation, New River Community Action, Voices for Virginia's Children, Tidewater Sowers of Justice and others. Our research and collaboration strongly indicates the need for reform (see VirginiaFairLoans.org).
Continuing to ignore the growing problems fostered by payday loans is a disservice to members of our communities who are victims of the industry and can't see the light at the end of the debt tunnel. Compassion is a central value of American faith communities, and we must leverage this compassion to encourage the same in our legislature. Help predatory lending victims stop the vicious cycle and prevent future citizens from suffering the consequences of abusive payday loans. Call or write your state legislator to express your support for legislative reform.
Richmond.com, Helen O'Beirne, Contributor
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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