Payday loans stance called a major step

September 20, 2007

Although a small step on its own, the anti-payday loans statement made by Staunton on Thursday could send a big message to the capital - if, that is, other communities follow suit.

“It’s very important for cities and counties across the Commonwealth to speak up about this,” said Jean Ann Fox, director of consumer protection for the D.C.-based Consumer Federation of America. “Everybody who’s worried about this has to work hard to be heard over the roar of the army of lobbyists the industry has deployed and the huge campaign contributions they make.”

A strong show of unity, she added, would be difficult to ignore within the General Assembly, which so far has been divided over how best to regulate the booming industry
While concern over payday lending has been mounting statewide, efforts to speak out against it at the local level have remained disjointed. In Waynesboro, where there are five payday loan stores, officials have just never considered taking a side in the debate, said Mayor Tom Reynolds.

Though it may be time they do, he added.

“I don’t know how much these people [payday lenders] need to make or what good they’re doing for the people who use them,” he reflected. “I feel it can become predatory, with people not being able to pay the loans back and never being able to catch up. … It smacks of taking advantage of the people who can least afford it.”
In Staunton, the City Council is urging other communities to join them in calling for stricter oversight of payday lenders. On Thursday, the city became the first to approve a formal resolution asking the General Assembly to limit the interest rates these companies can charge. Copies are being distributed statewide in hopes that other localities will join ranks.

Payday lenders, well aware of the vocal opposition they face, have been amenable to some reform ideas, such as limiting the number of loans a person can take out at any given time. Interest caps, however, have been labeled as too severe - a change they say would decimate their profit margins and drive them to ruin.

Dan Drummond, a lobbyist for the country’s biggest payday lender, Advance America, said those aligned against the industry fail to understand the business’ true nature or the makeup of its clientele.

“Our customers are not the poor and destitute,” he said. “They’re not illiterate. They have bank accounts. They’re participating members of society. These are middle class families who have unexpected expenses they need to take care of and, unfortunately, in this very emotional debate they’ve been put in the middle.”
Instead of pursuing interest limits that would only harm the industry, Drummond said, the state should seek a compromise solution with reasonable regulations.

Calls for interest caps have been made at the state level in the past, but have proven unpopular among legislators. Two, ultimately unsuccessful, reform plans passed by the House and Senate last year both rejected the idea of caps.

“The industry has done a good job convincing people an interest cap would put them out of business,” said Del. Jenn McClellan, D-Richmond, who sponsored an unsuccessful rate cap bill in the last session. “A lot of people want to regulate the industry, but they don’t want to put them out of business. That’s why it’s failed.”
McClellan herself isn’t convinced a cap would have such drastic fallout, but she’s willing to take the risk.

“We have to ask ourselves is it better to support an industry that keeps people trapped in a cycle of debt or is it better to not?” she said.

More resolutions like Staunton’s, she added, would be a welcome addition to the ongoing reform campaign.

“I think it would have a huge impact,” she said. “When you have local governments, who speak for the people they represent, joining with consumer groups and issue advocacy groups [who have already condemned payday lending], eventually you have to concede there’s a problem that needs to be solved.”

Resources: http://www.newsvirginian.com/