Phil Chroniger writes about Virginia’s latest war against Payday loans, this time from Frederick County, Virginia:
Winchester — If the state government won’t let them corral unfair consumer loans, Frederick County officials want state officials to do it for them.
At its regular meeting on Wednesday, the county Board of Supervisors approved a resolution asking the state Legislature to regulate businesses that lend cash to customers in exchange for collateral such as a vehicle title or a personal check for the amount borrowed plus interest.
The county is one of a growing number of communities seeking stricter limits on such “payday” loans, but with no legal recourse to do it themselves, the communities’ officials are asking state leaders for legislation that will do this.
Critics say these loans prey on low-income borrowers who find themselves trapped in a cycle of high-interest payments while trying to repay the loan.
“It’s usury, plain and simple,” said Supervisor Barbara Van Osten. “The individuals who take out these loans are vulnerable individuals who come to these lenders because they can’t go to a bank. They end up even further in continued debt.”
The lenders say their loans are meant for short-term need and that they inform borrowers about the terms and risks of such loans.
In their resolution, the supervisors ask lawmakers to prohibit requirements such as a personal check or vehicle title as a condition for a “payday” loan and to cap interest rates on such loans at 36 percent.
Supervisor Gene Fisher expressed concern that the rate was still too high and recommended that any law dealing with these loans require a “reasonable” interest rate. Van Osten said such language was too vague.
And tell me Supervisor Fisher, how is it that you will determine what this “reasonable” rate is, especially when you’re talking about people who are credit risks to begin with ?
As I noted when I wrote about this back in January:
There’s no denying that pay-day loans can be expensive for the people that enter into them. Depending upon how long the loan is outstanding, the effective interest rate can be as high as 390 percent or more, but when you consider the fact that the people who are serviced by this industry typically have bad credit, low income, and few assets, it’s not all that surprising that they would be charged high interest rates for a loan.
The alternative to putting the payday lending business out of business, which seems to be the goal of many of the crusaders out there, is that many of the people who use these services would have no alternative at all to satisfy a short-term cash need.
Who does that hurt in the end ?
Certainly not the self-satisfied academics in Fairfax and Richmond who are so shocked by all of this.
