What’s bright-colored, located in a low-income neighborhood, more common than McDonald’s restaurants, and can charge up to 380 percent interest? Keep reading to find out.

In 2002, the Virginia General Assembly passed the Payday Loan Act, creating regulations that allowed payday lending in Virginia. Now, according to the Virginia Partnership to Encourage Responsible Lending (VaPERL), there are 793 payday lending storefronts in the Commonwealth, and “over two payday loan shops for every McDonald’s in Virginia and three for every Starbucks.”

Car title lenders operate similar operations, directed at the same low-wage clientele. Even though small loans are capped at 36 percent interest under Virginia law, car title lenders are exploiting a legal loophole — avoiding interest rate limitations by structuring the debt as open-ended credit, like credit cards. Open-ended credit was deregulated in Virginia, but the legislature has never decided that secured small loans should be deregulated.

Stephen Winslow was a manager at a payday lending operation for a year. Based on his experience, he now calls payday lending “an industry based on its customers defaulting.”

“I know what they’re telling those managers. I know that you’re terminated as a manager if you can’t maintain certain numbers in your store — which are the recovery of funds, following a very aggressive policy for recovery of those funds,” Winslow said in an interview with the Augusta Free Press.

Karah was a client of a payday lender. After she couldn’t pay her loan and talked to the lender to try to arrange partial payments, the lender threatened her with jail.

“I was so scared by the end of the phone call I was crying, because I wasn’t familiar with the laws and I thought I was going to jail for sure,” Karah said. “He told me I could get locked up. Thanks to some wonderful advice [from VaPERL members] I feel safe again. With my payday loan, I felt like a mouse in a trap crying to get out but couldn’t. These people are not out to help anyone – rather, they are out to hurt people and destroy their lives.”

VaPERL is working statewide to mobilize Virginians against predatory payday lending. The coalition’s members include statewide organizations like VOP, AARP, Better Business Bureaus of Virginia, Legal Aid Justice Center, Virginia Citizens Consumer Council, Virginia Interfaith Center for Public Policy, Virginia Muslim Coalition for Public Affairs, Virginia Poverty Law Center and Voices for Virginia’s Children, as well as local housing non-profits and community action agencies.

The problem

Payday loans cost an estimated $160 million in fees each year. The Center for Responsible Lending reports that 99 percent of payday customers are chronic borrowers. Contrary to industry claims, the average payday borrower in Virginia took out 12.8 payday loans in 2005.

That’s hard-earned income flowing out of Virginia and into the pockets of out-of-state lenders. When payday lenders win, Virginia’s economy loses. Our workforce is weakened, our benefits rolls are increased, and our overall economic sustainability is put in jeopardy.

The solution

“Why should any business get a special exemption for a business plan that requires charging their customers upwards of 380 percent? The Virginia General Assembly legislatively legitimized such a business model in 2002 by passing the Payday Loan Act,” said Helen O’Beirne, responsible lending coordinator of VaPERL. “It’s time to correct that error by passing legislation that would create real reform to end the debt trap.”

VaPERL believes the best way to protect Virginians from the ills of payday lending is to impose a reasonable rate cap on annual percentage rates (APR) for these types of loans. Congress recently enacted a 36 percent cap on all small loans made to military personnel. A 36 percent APR cap on car title lenders would subject them to the same restrictions that all other small lenders in Virginia abide by. Many states have already taken this action, and are seeing a drop in the number of citizens suffering from predatory payday loans.

Legislation

You can help by supporting legislation that repeals the Payday Loan Act or imposes a 36 percent APR cap on payday loans and car title loans. Look for legislation that does both. Analysis of laws in other states reveal that smokescreen regulations like cooling off periods, mandatory payment plans, and databases are not effective solutions.

Action Alert

Here are some ways that you can get involved.

• Contact your legislators to voice your support for legislation that repeals the Payday Loan Act, or that would cap APRs on payday and car title loans. Since the current cap on small loans in Virginia is already set at 36 percent via the Consumer Finance Act, it would be relatively simple to replicate that cap for payday and car title loans.
• Participate in action alerts. VOP and VaPERL offer ways to quickly contact your representatives. Check both websites frequently: www.virginia-organizing.org and www.virginiafairloans.org.
• Join VaPERL! You can do this individually or organizationally. Visit the website www.virginiafairloans.org to sign up for the listserv or download a membership form.
• Help us gather stories from victims of predatory lending. Legislators need to know the human face behind the problem. If you or someone you know has been caught in the trap of payday or car title loans, please refer them to VaPERL, where they may qualify for legal assistance.
• Spread the word! It’s imperative that Virginians understand the details and extent of this problem. Encourage your friends, family, and colleagues to get involved to help protect their neighbors from this type of usury.

For more information, please contact VaPERL Responsible Lending Coordinator Helen O’Beirne at helen@virginiainterfaithcenter.org or (804) 643-2474.