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Virginians mobilize to cap predatory “payday” lending

Since payday loans were authorized by the Virginia General Assembly in 2002, more than 800 offices have opened in the state to entice citizens to borrow up to $500 until their next payday. In 2006, 433,000 people in Virginia took out more than 3.5 million of these loans. With few exceptions, they have unfortunately been caught in the debt trap designed by the payday loan industry based upon their abusive interest rates of 391 percent on a two-week loan. As a result, more than 90 percent of the borrowers took out at least five loans during the year. The average borrower actually took out at least eight loans in 2006 and paid more than twice as much interest ($793) as the amount of the original loan ($365). In the words of former payday lender executive Mike Donovan at a September 2007 news conference, “The repeat borrower is vital to our business model.” Payday lenders, he went on to say, are “in business to create repeat customers.”

From earliest Colonial times until 2002, such predatory loans were illegal in Virginia. In the words of Legal Services attorney John Whitfield, interest ceilings are “reflective of conservative social values dating back to Biblical teachings against usury.” The Payday Loan Act of 2002 was an experiment, and it has failed. It is time to re-impose Virginia values.

Rural and urban, young and old, from the mountains to the shore, Virginia residents have been organizing to encourage the 2008 General Assembly to cap the rate charged under the Payday Loan Act at 36 percent. All small loans in Virginia under $2,500 (EXCEPT PAYDAY LOANS) are capped with interest rates no more than 36 percent. Requiring payday lenders to charge no more than 36 percent levels the playing field for all lenders in Virginia.

To preserve their present rates and profits, the predatory loan industry will certainly keep making huge campaign donations, hiring expensive lobbyists, and running television ads. They will propose reforms that sound good but allow them to keep exploiting Virginians. But their money power is being countered by some amazing people power. This review of what is being done looks impressive — and it is — but remember, the real struggle is still ahead of us.

Constituent meetings with state legislators

Constituent meetings with state legislators are the backbone of VOP’s preparation for the General Assembly, and many other groups are taking the same approach. Dozens of meetings have taken place across the state between grassroots constituent groups and state legislators demanding a cap on the payday lending rate. VOP and other groups described below have brought stories from payday loan victims, and often the victims themselves, to these meetings along with statistics and arguments showing that limited payday reform won’t work.

Some legislators continue to believe the industry over their own voters. What are the magical strings that payday lobbyists pull to get this kind of support? Take at the look at the website www.vpap.org of the Virginia Public Access Project to see who donates to your state delegate and senator and how much. Once you have found your state representative, click on the links for “Contributions—By Industry,” and then click on “Financial, Insurance.” Finally, choose the link to “Lending Companies/ Consumer Credit” and you will see what payday lenders, check cashers, and car-title lenders have given money to your representatives’ re-election campaigns.

The sponsors of the reform bills in the past General Assembly, Senator Dick Saslaw and Delegate Lee Ware, received $40,750 and $11,250 respectively from this sector. Reach the conclusion that seems best to you.

VaPERL continues to press for change

Virginia Partnership to Encourage Responsible Lending, known as VaPERL, was the first Virginia organization formed in response to the issue of payday lending. VOP has been an active member of VaPERL since its formation. The Partnership includes a wide range of local organizations, as well as these other groups that operate across the state: Virginia Poverty Law Center, AARP, HOME (Housing Opportunities Made Equal), the Virginia Interfaith Center for Public Policy, the Better Business Bureaus of Virginia, NAACP, AFL-CIO, the Virginia Association of Area Agencies on Aging, the Virginia Citizens Consumer Council, Virginians Against Predatory Lending and Voices for Virginia’s Children. VaPERL was very active at the 2007 General Assembly, and will be active again this year. You can find more about it at www.vafairloans.org, or you can contact VaPERL through Dana Wiggins, Responsible Lending Coordinator, Virginia Poverty Law Center, at (800) 868-8752 x21 or dana@vplc.org.

Virginia Interfaith Center gains faithful pledges

If you lend money to my people, to the poor among you, you shall not deal with them as a creditor; you shall not exact interest from them. (Exodus 22:25)

During biblical times, abusive lending practices were addressed by instituting strict standards, including banning the charge of interest to the poor (Exodus 22:25). Likewise, Jesus commended Zaccheaus for promising to repay the excessive fees he had exacted from the oppressed (Luke 19:8-9). Today, in modern times, predatory lending practices exploit low- to moderate-income people. This is a serious moral issue for people of many faiths.

The Virginia Interfaith Center for Public Policy has been educating local congregations and moving them to action through their Faithful Pledge campaign. In November alone, the Center met with concerned people of faith in Abingdon, in Tidewater, and at a Presbyterian church in Richmond and a Conservative Jewish temple in Fairfax County. Anne Rasmussen of the Center said, “We are especially thankful for our Baptist, Episcopalian and Presbyterian partners!” She added that “our partnership with Virginia Baptists culminated . . . when the Baptist General Association of Virginia passed a resolution that urges the General Assembly to cap payday loans at 36 percent!” If your faith community wants to join this effort, please visit www.faithfulpledge.org.

Another faith-based group that has many positions very different from those of VOP, the Family Foundation of Virginia, has also taken a strong position that the Payday Loan Act represents “a clear violation of Biblical principle,” and has called for its repeal.

VAPL brings intensity and business savvy to the issue

Virginians Against Predatory Lending came on the scene with great energy in early 2007, and they have worked across the state to (1) cap the payday lending rate at 36 percent, (2) develop lending alternatives to payday loans, and (3) advance the financial literacy needed to keep people out of debt traps.

They have been active in many communities pushing for local payday resolutions, meeting with state legislators, talking with credit unions and banks about developing real alternatives to take the place of payday lending, and supporting the industry whistle-blowers that have been speaking out on un-ethical practices by payday lenders.

Ward Scull III, a Hampton Roads business owner, became aware of the impact of payday loans on his employees. This group has spent hundreds of hours working the centers and edges of power on this issue. They bring a business orientation to the issue. They have made contact with financial regulators, and are publicizing a paper that details the major negative economic impact of payday lending on Virginia. You can find their website at www.stoppaydayloans.org.

Washington County VOP Chapter works to get local payday lending resolutions passed

“One man came up to us afterward and expressed his thanks for ‘looking out for working people.’ I think this was a great success for us and for VOP,” said long-time VOP member Ed Davis. After hearing from VOP, the Washington County Board of Supervisors had just joined dozens of other local governments across Virginia in passing a resolution on payday lending.

This fall, Washington County VOP Chapter members worked to get the governing bodies of Washington County, the City of Bristol and the Town of Abingdon to pass such a resolution calling for the General Assembly to cap interest rates for payday lending at 36 percent. Chapter members got petition signatures, met with local officials, and attended city council and board of supervisor meetings to urge their local officials to join the growing list of localities who have passed these resolutions.

Bristol had actually passed the resolution the meeting before VOP had members attend to make the request. However, the biggest victory occurred on December 11 when the Washington County Board of Supervisors voted unanimously (7-0) to pass the resolution after a joint presentation by VOP and People Incorporated, also a member of VaPERL.

“It was evident that the Board of Supervisors members were aware of the rapid spread of payday lending institutions throughout the region and that they were interested in doing their part to promote reform,” said Bryan Phipps, People Incorporated’s Director of Program Development. People Incorporated, a Community Action Agency, is not only a coalition partner on the payday lending issue statewide; the non-profit agency is developing a lending program at much lower interest rates as an alternative to payday loans.

“The need for additional access to short-term capital in our communities is growing,” Phipps said. ”People Incorporated is committed to identifying and developing flexible and affordable ways of meeting this need for consumers throughout the region.”

The vote brought together efforts of long-time VOP supporters and new members alike. It also gives the Chapter good momentum heading into 2008.

“It was gratifying to see how eager the County Supervisors were to address the problem of predatory lending,” said Susan Livingston (a new VOP member) after the meeting. “They readily expressed concern for their constituency and asked pertinent questions. VOP and People, Inc. were the perfect partners to represent both the humanitarians, who are often perceived as too liberal (whatever that means), and the disenfranchised, who are often perceived as undeserving. If I felt any disapproving vibes coming from the Council, it was with the fact that we hadn’t made our proposal sooner. Having witnessed the mechanics of passing a resolution, I feel more courageous about bringing actions before the Council — these people are downright approachable!”

For more information about VOP’s organizing in Washington County, contact Brian Johns at (276) 619-1920 or e-mail him at bjohns@virginia-organizing.org.

Fairfax County joins in

Fairfax County is home of over 1.2 million residents — one in every seven Virginians. Senator Dick Saslaw (D-35th District), the new Senate Majority Leader and an opponent of a 36 percent interest rate cap, is part of Fairfax’s legislative delegation. Getting Fairfax County “on board the 36 percent cap train” was critical.

At an October Board meeting, Supervisor Gerry Hyland had given general agreement that some payday lenders “prey upon an economically vulnerable segment of our population, as well as our military. They exploit their need and perpetuate a cycle of debt which can take years to recover or leave them in financial ruin.”

Yet as the County’s Board of Supervisors deliberated about their legislative priorities, a 36 percent payday lending cap was not on the list. Supervisors had referred a resolution back to committee in November. Despite concern expressed by some supervisors, and active pressure by VOP members and other groups, it was unclear whether the county would take a stand as the hour of decision came.

Just before the Board adopted its legislative package, Supervisors Gerry Hyland (Mount Vernon) and Kathy Hudgins (Hunter Mill) demonstrated tremendous leadership by jointly introducing a resolution for the 36 percent cap. So December 3 marked a major victory for Northern Virginia VOP members and other opponents of predatory lending when the resolution was passed.

Hyland and Hudgins had responded to numerous VOP member calls and e-mails about the emerging payday problem in the region. Many callers noted that restrictions by Maryland, West Virginia and Washington, D.C. on predatory lenders might drive the lenders into nearby Fairfax County.

For more information on VOP’s work in Northern Virginia, contact Richael Faithful at faithful@virginia-organizing.org or (757) 784-6046.

Industry whistle-blowers form CapAmerica to fight back

Former employees and managers of payday loan shops banded together to help in the fight to cap predatory loans at 36 percent in an organization called CapAmerica. You can learn more about them at their website, www.capamerica.org.

Bill Harrod, Mike Donovan, Cameron Blakely and John LaCombe have some mind-blowing stories to tell. You can view all of them on the “News” link of the website above, but here are a few highlights from William Harrod: He was asked to access clients’ bank accounts — pretending to be the client — to track their income and spending. He explained how employees are trained not to offer the Extended Payment Plans (this is not available under Virginia law) that law forces the industry to give clients. He describes how almost every client remains bound to the same loan for over one year. And finally, he discloses how the payday industry gave up its business in Pennsylvania after that state passed a 36 percent rate cap instead of changing their business model to a line of credit and staying open. He says the industry preferred to sacrifice the state rather than set a precedent that could be followed in other places around the country.

AARP in Virginia throws its weight against predatory lending

AARP participates actively in the VAPERL coalition and has attended a number of meetings with legislators across the state to talk about predatory lending. Their Voter Guide, published before the November elections at the website www.aarp.org/issues/state_elections, outlined the positions of incumbents and challengers across Virginia on capping payday loans at 36 percent.

Assembling this sort of vote count was a critical mission as January 2008 and the General Assembly approached. Surprisingly, a pattern emerges. Challengers and candidates for open seats, neither of whom have served in the legislature yet and who have not been exposed to the full-court press of payday lobbyists, nearly universally support a rate cap. It is not until representatives reach Richmond and become incumbents, with responsibilities not just toward their own voters but also toward campaign donors and state party leaders, that they begin to change their position toward payday reform.

Harrisonburg residents take it to the streets

On a chilly afternoon on the last day of November, more than a dozen Harrisonburg residents joined the Central Shenandoah Valley Chapter of VOP to stand up against payday lending. Their signs were seen by hundreds of Friday afternoon commuters driving by on Route 33, Harrisonburg’s busy Market Street. They marched for more than 90 minutes at the location of two of Harrisonburg’s many payday lenders before returning to their starting point, Muhlenberg Lutheran Church. While the Church’s pastors were unavailable to join the group, Pastor Joe Vought assured everyone that they were part of efforts “committed to mounting a challenge and a change to payday lending.”

One of the payday store managers called the Harrisonburg City Police and falsely stated that the picket line was blocking access to their store and harassing people. VOP had contacted the police in advance to make our plans clear. The police assured the group they were obeying all relevant laws, and said almost apologetically that they had to respond when they got a complaint. The local daily paper ran a front-page article the next day, and the local TV station came and taped an interview.

Chris Gatesman, who works for James Madison University Student Affairs, was there because he had learned that payday lenders “prey on folks.” He said, “I can sit at home and steam or I can come make a difference, so here I am.”

Jessie Dodson, a member of the JMU Progressive Coalition and New SDS, has been involved in fighting mountaintop removal and other issues. “I’m glad to have the chance to be here today to stand up for social justice.”

As the picket line continued, Abraham Wells, a former payday store manager in the Washington, D.C. area, educated the group about his experiences. “The last straw,” he said, “was when we took a thousand dollars out of a woman’s bank account. She came into the store crying because her rent was due, and she couldn’t pay it. I realized exactly what I was doing, and I couldn’t do it any more.” He also told the group about recruiting borrowers in Washington’s inner city.

Ending the event in good spirits, the group had a debriefing and enjoyed hot apple juice and snacks.

You can contact the Central Shenandoah Valley Chapter of VOP through Larry Yates at llyates@shentel.net or (540) 436-3432.

Alternatives to predatory lending

Virginians across the state are developing lending alternatives to fill the gap when predatory lenders are banned here. In North Carolina, a recent study showed that credit unions stepped in with a payday product when the state repealed its law authorizing payday loans. Many credit unions in Virginia aren’t waiting before they do the same. VAPERL has assembled a list at www.virginiafairloans.org/creditunions.html. As mentioned in the Washington County story on page 9, some non-profit agencies are considering similar programs.

Many had been puzzled that the Virginia Credit Union League retained the same lobbyist to work at the General Assembly as did the payday loan industry, Reggie Jones. Recently the Navy Federal Credit Union ended its membership in VCUL, stating that it refused to be represented by Jones. In a significant victory, VCUL responded by releasing Jones and shifting to other lobbyists at his firm of Williams Mullin.

Sometimes humor says it best

Finally, we urge our readers with Internet access to visit www.predatorylendingassociation.com, where the motto is “Helping payday lenders extract maximum profit from the working poor.” It’s a parody website, but in the words of Jay Speer at VAPERL, “It wouldn’t be so funny if weren’t true.”