VOP partners with statewide coalition VaPERL to put a stop to predatory lending

What’s green and yellow and greedy all over? How about the storefronts of Advance America, the nation’s largest and most widespread payday lender? When this article was written, there were 128 of their payday loan stores in Virginia, already up from 113 in January.

There are 776 payday lending operations in the Commonwealth, owned by various companies. That’s three times the number of Starbucks’ stores and twice the number of McDonald’s restaurants in our state.

In some neighborhoods, these establishments are literally on every block. Payday lenders notoriously target military personnel, low-wage workers, single mothers (one industry business plan touts “welfare mothers” as perfect customers), elderly (yes, they will take Social Security as proof of income), and communities of color that have seen traditional banks flee from their streets.

The reason lenders set their sights on these special (and especially vulnerable) populations is because folks living paycheck to paycheck are far LESS likely to pay back a payday loan. That may sound strange — why would lenders want customers to default? Because payday lenders make their exorbitant profits from people caught in the “debt trap.”

Payday borrowers can rarely pay back the full amount of the loan (known as a “balloon payment”) within two weeks of receiving it. After all, if you need $300 to take care of a car repair, chances are you won’t be able to miraculously produce an extra $300 from your next paycheck, usually dedicated to food, transportation, health care and childcare. Even when borrowers enter the store on payday to repay their debt, store employees encourage them to “float” the loan by paying the fees (and none of the principal) to roll it over. In Virginia, these fees are $15 for every $100 borrowed, or up to a 782 percent annual percentage rate! In the $300 example above, you would have already paid $45 for the original amount and then you will pay another $45 every two weeks — without reducing the debt a cent. And so the cycle of debt continues! The Center for Responsible Lending estimates that the average payday borrower pays $800 to borrow $325.

Who allowed for this form of legal loan sharking? It was our very own Virginia General Assembly, which passed the Payday Loan Act in 2002, allowing these predators to operate freely in our state.

Perhaps in 2002 our legislators couldn’t have predicted how much of a problem that payday lending would become. But now it is abundantly clear. Last year alone, over $167 million in fees were sucked directly out of hard working Virginians’ paychecks and deposited directly into the pockets of out-of-state lenders.

To ensure that this terrible situation is corrected, concerned Virginians formed the Virginia Partnership to Encourage Responsible Lending (VaPERL), a statewide coalition advocating for legislative reform of payday lending. (A member list is at the end of this article.)

VOP and its members are a vital part of VaPERL’s efforts. Action from the grassroots is imperative if we are to successfully convince all legislators that payday lending is just downright bad business and does not belong in Virginia. Go to http://ga4.org/campaign/36percent and you can help by signing the petition to end predatory lending in Virginia. The petition contains a letter that is easy to print out and send to your legislator or call and read to them. In addition, VaPERL will be delivering all of the signatures that are collected at the most crucial moment!

The General Assembly will have a chance to correct the egregious error of legalizing this industry by passing Delegate John O’Bannon’s House Bill 619, which would repeal the Payday Loan Act and require that payday lenders follow the same rules as every other financial institution, including having their loans be subject to a much more reasonable 36 percent annual percentage rate cap. This bill has been carried over to the 2007 General Assembly. In addition to Delegate O’Bannon’s co-sponsors, others like Delegates Oder, Alexander and Morgan are also taking a bipartisan lead on this important issue.

If you are interested in learning more about predatory lending in Virginia, have a story to tell, or would like to join the listserve, please contact Helen O’Beirne, Responsible Lending Coordinator, at 804.643.2474 or helen@viginiainterfaithcenter.org. You can also check out the website at http://www.VirginiaFairLoans.org.

The Virginia Partnership to Encourage Responsible Lending (VaPERL) is a coalition working to reduce the dangers of predatory lending in Virginia. Member organizations include: AARP, Virginia Poverty Law Center, Virginia Interfaith Center for Public Policy, Housing Opportunities Made Equal, Richmond Better Business Bureau, CHIP of Virginia, Legal Aid Justice Center, Virginia Organizing Project, Virginia Citizens Consumer Council, NAACP Virginia State Conference, Piedmont Housing Alliance, Virginia Muslim Coalition for Public Affairs, Peninsula Community Development Corporation, New River Community Action, Voices for Virginia’s Children, Tidewater Sowers of Justice and others.