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Payday loan measure killed in committee

December 6, 2006 - Richmond, Virginia

A House committee yesterday killed a bill that would have banned payday lending in Virginia.

But the bill's sponsor says he's going to reintroduce it for the 2007 legislative session that starts next month, where it will compete with other bills that are expected to add regulations to the industry but not ban it altogether.

At issue is whether payday lending--the practice of extending small, short-term loans at interest rates that would work out to be 300 percent or more--is a legitimate business or a predatory practice.

Payday lending has been allowed in Virginia only since 2002, but already there are 90 companies licensed to do it in Virginia, with nearly 800 stores.

Opponents of the business say that payday lenders take advantage of low-income, desperate people by extending them credit when they know the customers can't afford to pay back the loans. Studies show that many people who take out a payday loan wind up taking out several, even though they pay high interest on loans of a few hundred dollars.

A payday loan typically is less than $500, is due by the customer's next paycheck--often two weeks--and the lender charges a $15 fee per $100 loaned. Customers who live paycheck to paycheck and take out a payday loan to cover an emergency bill often find that when the next payday rolls around, they can't afford to pay it back plus the fees, and still pay their regular bills, so they take out another loan, and begin a cycle that opponents liken to quicksand.

Supporters of the practice, however, say it fills a need for people who do live paycheck to paycheck, who might not have credit good enough to qualify for a lower-interest short-term loan. They also point out that the state allowed these businesses to come into Virginia, and it's unfair to now ban them.

Members of both camps packed the meeting room for the House Commerce and Labor committee meeting yesterday.

Del. John O'Bannon, R-Richmond, had introduced the bill last year, but it was carried over to give lawmakers more time to study the issue.

O'Bannon said he had a broad coalition of groups backing his legislation to do away with payday lending, including the faith community, military groups, the AARP, the NAACP, and the Family Foundation.

"We've done the experiment, and it's time to go ahead and sunset this practice as other states around us have done," O'Bannon said. Payday loans are prohibited in North Carolina, Maryland and West Virginia.

A line of people supporting O'Bannon's bill spoke for about 40 minutes. They included people like Carmen Candelario, who found herself in debt after taking out payday loans.

"It's hard to try to pay on your payday and be broke at the same time," she said. "At first I thought it was a blessing but then I realized it was a burden."

Opponents of O'Bannon's bill came with a five-minute video of payday loan customers in payday loan stores. Most of the people in the video said they used payday loans to cover emergencies, and that lawmakers seeking to prohibit the loans have no idea what it's like to need a payday loan just to cover a bill.

"There is tremendous demand for this product from your constituents," said Reginald Jones, a lobbyist for the Community Financial Services Association, which represents the payday loan industry.

Some lawmakers said that if they ban payday lending, it could lead to loan-sharking and other less savory and unregulated methods of getting money fast. Others said the poor are getting poorer because of payday loans and that those in need can go to churches or other institutions to help out.

Del. Terrie Suit, R-Virginia Beach, told a story of a young military wife who had to pawn her husband's expensive bicycle to pay to fix a water heater. She'd have preferred a payday loan, Suit said, revealing that she was telling a story from her own past.

People who take out the loans are "not people who want charity," Suit said. "That is a mechanism of borrowing that's most convenient for them."

Del. Vince Callahan, R-McLean, said that payday lending exists because there's a demand for it, and it's not up to the government to play nanny.

"People in our society have free will," Callahan said. "I don't think we as a government should be telling them what to do in everything."

In the end, the bill died on a 10-8 vote, but the issue is sure to be revived in next month's legislative session. In addition to the ban O'Bannon promises to bring back, other lawmakers are proposing legislation that would further regulate the payday loan industry, with a database to keep track of how many loans a customer takes out and rules prohibiting lending to someone who already has several payday loans.

News Source

The Free Lance-Star, Chelyen Davis, Staff Writer

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