Payday Piracy

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New state regulations governing payday lending institutions took effect today. Anyone who has spent significant time in the Southside will recognize the importance of this legislation for our area. Martinsville and Henry County are riddled with them--driving through Collinsville, one can count at least 12 pay day lenders just in a 2-mile stretch of this blog's namesake.

These are truly vile institutions--with easy loans and impossibly high interest rates, they prey on the poor and those who desperately need money. Once someone has accepted such loans, they are forever trapped under a mountain of debt that they can never pay off. Naturally predatory lenders have sprung up like weeds in areas like Martinsville that have been hard-hit by unemployment.

I applaud the effort to do something about these institutions; however, as this article in the Danville Register-Bee has pointed out, the regulations remain far from perfect and the crooks--er,--lenders are already finding the loopholes. This little tidbit is especially infuriating:

In the meantime, the State Corporation Commission approved 11 payday lending companies’ requests to offer open-end credit products. Another seven applications are pending.

In Virginia, lenders offering open-end credit are unregulated. They can charge whatever they want as long as they don’t charge anything for the first 25 days. (My emphasis)

Awesome. So if you want to systematically rob poor people and hold them in perpetual debt, all you have to do is not charge interest for the first 25 days. I'm not sure I have words scathing enough for the flagrant incompetence exhibited by the bolded sentence above. I will be interested to see how the gubernatorial candidates respond to this news, given that the State Corporation Commission is (correct me if I'm wrong) an executive branch agency. Please call your legislators before the General Assembly session and let them know how you feel about this subject. Thanks for reading.

Cross-posted to 220 South

Unfortunately, I don't see the GA addressing this issue

Last year's sellout on predatory lending pretty much means that the GA won't even look at this issue for another couple of years. The consumer lending industry is one of the largest contributors to Virginia politicians. This is a multi-billion dollar industry in the Commonwealth.

I can't emphasize Max's point enough. These lenders charge interest rates of 250% or more, and many borrowers, once they get sucked in, fall into a spiral of debt from which they cannot escape. The industry claims they are providing a needed service by providing credit to people for whom more traditional forms of credit are unavailable, and their outrageous rates are necessary for them to make money. If there is actually any element of truth to that argument, it is very small -- but even so, it in no way changes the fact that these predatory lending businesses ruin lives and suck money out of the local economies that most need it.

What is needed is a simple 36% cap on interest rates. Eventually, folks in need of a small loan short-term loan would be able to find it at a reasonable rate, and the predatory payday lenders would take their business someplace else.