Payday lenders in hot water
Virginia Senator Richard Saslaw crafted the legislation that bans payday lenders from offering open-ended loans.
Last year Virginia passed a 36 percent interest rate cap on payday advance loans. In an effort to save their businesses, payday lenders began finding ways around the debilitating law by offering open-ended credit.
Under Virginia open-ended credit laws, lenders can charge any interest rate as long as there are no costs in the first 25 days. So, if the borrower pays back the payday advance loan within 25 days, which is the way it is supposed to work anyway, the borrower is charged nothing.
Fighting to survive
The Interest rate cap in Virginia was passed last April. Shortly after that, payday lenders began offering open-end loans. After the 36 percent Interest rate cap, payday lenders just couldn’t bring in enough profit to stay viable. Most payday advance loans are so small that 36 percent interest adds up to mere cents.
But now Virginia has banned payday lenders from offering open-end loans. Borrowers who pay back open-end loans on time don’t get charged any interest. Only people who default on their loans have to pay interest and fees. Still, payday lenders are now relegated to offering only payday advance loans, and only at 36 percent interest. No doubt we will see many workers in the payday lending industry lose their jobs.
Bleak future for payday loans
Job loss and bankruptcy will only get worse if the president’s financial adviser Luis Gutierrez has his way. The new head of the Financial Services Subcommittee on Financial Institutions and Consumer Credit is considering a national interest rate cap.
Payday lenders are there to help when people run into a financial emergency, but if these regulations keep getting pushed through, payday advance loans might not be around much longer.
Doing away with an entire industry for no good reason seems to be quite in style for state legislatures that don’t know enough about the product. Virginia is pretty close to South Carolina and Georgia – and the evidence has shown the impact of similar bans in those states to be negative. Apparently empirical evidence isn’t enough for these supposed “do-gooders.”
Payday lending critics claim that the industry “costs” American families $4.2 billion in fees. But in 2006, consumers spent $4.2 billion in ATM service charges to withdraw their own money. They paid an estimated $22 billion in NSF fees to banks and credit unions, and banks collected an estimated $10.3 billion for overdraft protection services. Businesses charged an estimated $57 billion in late bill payment fees (more than 140% of the total estimated payday lending volume in the U.S.) And credit card interest cost consumers more than $87 billion.
I think that with the economy in the shape that it is in that the government should put the laws back to the way they were and leave these stores alone.
These payday lending stores come in handy from time to time for people who use them “responsibly”.
And, with all the talk about how many people are receiving unemployment benefits, its not good that all the employees in these stores are losing their jobs because of all the changes that were made in these stores.
If the laws were put back to the way they were then these people who have lost their jobs can go back to work and not have to receive unemployment benefits.
I think that other issues should be addressed instead of these stores and the laws should be go back to the way they were to begin with. This would take care of some of the people who are receiving unemployment benefits.
Good!
These lenders do need this regulation and much more. They are nothing but legalized LOAN-SHARKING PRACTICES at the very best. They prey on the poor, middle to lower class who are having financial hardship and just make their situation worse with their ungodly high interest rates that they do not tell you about when you get the loan. They have heri in store presentations set up in code so that you understand one thing when you sign when the case actually i something else tottaly when your payment comes due. I wish they would ban them in Virginia as they did in NC. Theyhelp noone but the owners of these companies become wealthy off of a very un-ethical business practice.
GET RID OF PAYDAY AND TITLE LOAN COMPANIES NATIONWIDE!!! THIS IS NOTHING MORE THAN LEGALIZED LOAN SHARKING!!!