A VOP organizer recently got a call from a local service agency that works with families, focusing on child development. The staff member knew VOP worked against predatory lending and was looking for resources for her client. Here is the client’s situation.

A woman and her children came asking for help. The woman’s husband was about to go to jail for a DUI conviction. Last month, he took their car title and went to a Car Title Lender to exchange it for a short-term loan of $750 for three weeks. On this loan, he has to pay an interest fee of $150. Car Title Lenders are allowed to charge up to 790 percent APR (Annual Percentage Rate) on their loans. A typical house loan charges 7 percent APR, a car loan 8-9 percent APR, and a credit card anywhere from 7 percent to 18 percent APR.

The man has not paid back the loan. The mother does not have the money to pay back the loan either. He is about to enter jail, and then she will lose the title to her car and have it taken from her. She will then lose her job, as she depends on the car to get to work in Newport News from her home in Williamsburg. Her husband will lose his construction job while in jail, so there will be no income for the family.

That is the harsh cost of predatory lending in Virginia.

Payday lending, also known as predatory lending, is the practice of using a check as collateral for a loan until one’s next pay period. To qualify, borrowers need a checking account and a steady income. There is no credit check and the loan offer is not based on the borrower’s ability to repay. To get a loan, a borrower gives a payday lender a personal check with fees of $15 for every $100 borrowed. Sounds good, right?

If it only it really worked that way. Here is the ugly reality:

• Predatory payday lending costs Virginia families $200 million in excessive fees each year.
• In 2006, the average person took out 14 loans, borrowed $365 and paid back $793.66 in interest alone.
• Payday lenders currently charge 391 percent APR (Annual Percentage Rate) for a two-week loan, far above that allowed to other lenders in Virginia.
• 91 percent of all payday loans are made to borrowers caught in a cycle of repeat borrowing, with five or more payday loans per year. In fact, only one percent of all payday loans go to one-time, emergency borrowers who pay off their loan within two weeks and don’t borrow again within a year.
• Virginia stands alone among the mid-Atlantic states in permitting these predatory loan practices; North Carolina, West Virginia and Maryland all ban such practices. Washington, D.C. just instituted a 24 percent cap.

The good idea of providing a short-term solution to the cash flow problems of working people has instead turned into a way for vultures to pick on the vulnerable.

Last year, the General Assembly was the stage for a battle between the payday industry and their plans for reform versus community coalitions which wanted to end the business altogether in Virginia. Democrats and Republicans took stands on both sides of the issue, making it a genuinely non-partisan fight.

In the end, a hostile amendment passed on the floor of the House asking to cap the rate that payday lenders can charge at 72 percent APR. When Governor Kaine said he would amend any reform bill that reached his desk so that the rate would be capped at a reasonable figure, the sponsors of the reform bills in the House and Senate pulled their bills instead, leaving no action on payday lending whatsoever.

Since that time, both sides have been working hard to sway state politicians to their side. The predatory lenders have continued making large campaign contributions. They give tours of their facilities to legislators and at the same time coerce their clients to send mail to their representatives in exchange for chances to win big-screen TVs.

But on the other side, the Virginia Partnership to Encourage Responsible Lending (VaPERL), of which VOP is a member, has been working hard to connect legislators with the majority of their constituents who oppose predatory lending. Across the state, VOP has organized meetings between constituents and their representatives to tell real stories and blunt statistics about the predatory, payday loan industry.

One by one, city and county governments pass local resolutions asking their Delegates and Senators to cap predatory lending rates at 36 percent. With Staunton leading the way, Shenandoah, Hampton, Waynesboro and Harrisonburg have passed these resolutions. Many other localities will pass them in the next month.

In Norfolk, the city council passed a zoning ordinance which demands that any business fitting the profile of a payday loan shop must apply for a special use permit before they can open. With this tool, Norfolk can prohibit any new payday shops from opening in their city.

VOP has also gathered hundreds of responses to a survey about payday loans put together by the Petersburg VOP Chapter. Not only does it present a picture of the public’s experience with predatory loans, it also helps find payday victims who are willing to tell their story publicly as part of the struggle.

How you can help?

• Ask your city or county to pass a resolution asking their state legislators to cap the payday lending rate at 36 percent. Look for allies on your City Council or Board of Supervisors and give them a call.
• Ask your city or county to pass a zoning ordinance like Norfolk’s allowing them to block any new payday loan shops in the their area.
• Collect survey responses on people’s experience with predatory lending. You can download a copy of the survey from www.virginia-organizing.org. Send them to VOP to be included in the final results.
• Gather names on the petition to cap payday lending at 36 percent. You can download blank petitions at the VOP website.
• Ask your faith community to sign the Faithful Pledge against payday lending, found at www.faithfulpledge.org.
• Work for positive alternatives to predatory lending so that families who have emergencies can get through them without a financial disaster — talk to your employer, house of worship, credit union or an agency in your community about setting up a short-term loan fund.

For more information, contact Ben Thacker-Gwaltney at ben@virginia-organizing.org or (757) 570-300