State Weighs Curbs on Payday Loans

"What these lenders are banking on is that people will come back over and over, and often they do because they have to get another one to pay off the first," Speer said.

Payday loans have caught the attention of Pentagon officials and members of Congress, who in September imposed a limit of 36 percent annual interest on loans to military families because of concerns that they were falling too far into debt. The law is scheduled to take effect in October.

Some lawmakers want to do the same in Virginia and cap the annualized percentage rate at 36 percent, a level that payday lenders say would drive them out of business. That rate would effectively mean that lenders could charge only $1.38 per $100 for a loan.

"I think in some cases a little government regulation is good," said Del. John M. O'Bannon III, a Republican from suburban Richmond who's sponsoring the bill. "These places have ginned up a market for themselves and now are claiming that they are performing a service. I just don't buy it."

Efforts in the General Assembly to place caps on the lenders won't be easy, although some politicians are trying to use it to their advantage in an election year. There are 11 bills before the General Assembly: five that would effectively drive the lenders out of the state; and six that would allow the current rates to stay intact but would, among other things, place a cap on the number of loans a borrower can take out at one time and mandate that lenders offer interest-free payment programs.

Indeed, some lawmakers argue that the centers provide a service to working- and middle-class residents who don't qualify for credit cards and aren't eligible for other types of loans. Others said the horror stories of circular debt were being exaggerated by critics.

Industry advocates added that the fees they charge for their loans were less onerous than those charged by check-cashing outlets or credit card companies and that they were being unfairly targeted by some lawmakers. And they pointed to statistics from the state that found that of the millions of transactions conducted in 2005, the State Corporation Commission recorded only 53 complaints.

"Nobody is being duped here . . . this is not a small-print issue," said Del. Mark D. Sickles (D-Fairfax). "My view is: Let's regulate it more, but don't abolish it at this point."

Interviews with more than a dozen customers in Northern Virginia over the past week found that many have come to count on the access to easy money if they are in a pinch, although several admitted they sometimes took out one loan to pay another.

Percy Jones, who works as a chef, among other jobs, and who recently moved to Dumfries from South Carolina, said he has several outstanding loans to payday centers. He said he was waiting for a check from his previous job to be able to pay everything off. The District native added that he has tried to avoid relying on payday lending, but having four teenagers to support on a modest $32,000-a-year salary forced him to cut corners.

"I can see how people would see this as bad, but this is how I've had to scrape by," he said.

He added that in some cases he has paid one loan off with another, but always knew he had money coming in the future that made him secure. He expects to take out more over the coming months because life in Northern Virginia is more expensive than in South Carolina.

"It's a way of life for some of us," he added, counting several $20 bills as he headed to a brown Chevrolet. "It would be better if it wasn't, but, frankly, it's like an addiction."