Virginia, Restrict Payday Loans at Your Peril

Don’t restrict open-ended credit

Why? Because the results inevitably remove competitive price regulation from the payday loans and short-term lending arena. This lack of competition inevitably harms the financial well-being of consumers in that it makes it more difficult to obtain quick payday loans, which in turn tends to drive consumers to much more expensive options like checking overdraft or (during tax time) tax refund loans.

Yet Virginia lawmakers continue to run around with blinders on, while taking their cues from highly suspect groups like the Center For Responsible Lending. According to this Associated Press story, Virginia is planning to unfairly shackle down car title lenders and strangle payday lenders. They are asking for a 36 percent APR cap on the loans, which is not only an unsustainable business model but harmful to consumers.

Since I don’t typically discuss car title loans, here’s the skinny. Car title lenders will grant a customer up to 50 percent of a car’s value. The owner gives a copy of the keys and title as collateral. If the owner doesn’t pay, the collateral can be repossessed.

What’s this all about, really?

This all stems from a part of the open-end law that currently forces the standard two-week payday loan company to cap their rate if they require payment before a 25-day period elapses. This effectively cripples the industry and opens the way for banks and credit unions to capitalize – but with even more expensive overdraft protection as the equivalent replacement.

If faxless payday loan businesses switched to installment loans or a similar product, the unfairly written open-end credit law in Virginia would have to go back to the drawing board. They’d find a way to regulate those eventually, but the fight for what’s right is worth the effort. People should have the freedom to choose payday loans when they wish.

The AP reporter refers to Advance America spokesman Jamie Fulmer, who brings up a recently introduced line of credit product that should keep the unreasonable open-end credit law at bay. Fulmer says that his company “shouldn’t be punished for trying to compete, especially since it got approval from state regulators to offer the loan, which charges about 360 percent annual interest for a line of credit up to $750.” Then Fulmer makes a key point:

To say we’re a company or an industry that has acted in bad faith and can’t be trusted is unfair, because we didn’t hide this.

Payday loans are a useful tool

Opponents of payday loans will continue to fight and proponents of payday loans will fight back. That’s called standing up for your rights as a business. Consumers can also stand up for their right to choose by voting in favor of free enterprise. If they don’t need payday loans, fine. Nobody’s forcing them to use them. However, many people do benefit from the loans. What gives one person the right to force another person to make financial decisions that aren’t in their best interests? What gives Virginia legislators the right to regulate away legitimate business and eliminate consumer choice? Is Virginia an island of wealth and prosperity in this maddening recession? See the video below – that must be how Virginia legislators see themselves and their little utopia that needn’t worry about turning away business…