House Passes Payday Lending Reform Bill Without a Rate Cap

By Amy Gardner
Washington Post Staff Writer
Saturday, February 17, 2007

RICHMOND, Feb. 16 -- The Virginia House of Delegates approved a series of payday lending reforms Friday that protect borrowers from excessive debt but that opponents say don't go far enough.

The measure is nearly identical to another that emerged from the Virginia Senate, virtually assuring approval. But it still must pass the desk of Gov. Timothy M. Kaine (D), and opponents are now turning to the governor in hopes that he will impose further reforms, such as an interest rate cap. A spokesman said Friday the governor is open to the idea.

"The governor has said that he believes the 2002 decision to lift the interest rate cap was one of the worst policy decisions in recent years," said Kaine press secretary Kevin Hall. "We will review whatever legislation gets to us with an eye toward making sure there are reasonable protections for consumers."

Payday lending is the name for a burgeoning industry in which customers may borrow, for a fee, modest amounts of cash against a future paycheck. The industry is increasingly popular among working families in Washington's suburbs and across Virginia. But it is also under increasing scrutiny from religious and consumer advocacy groups, who say it encourages low-income earners to take on more debt than they can handle, and, in some cases, to take out one loan to pay off another.

These groups have sought to cap the fee that payday lenders charge, but lenders have argued that such a move would effectively kill the industry and put hundreds out of work. Virginia law allows the industry to charge $15 for a two-week $100 loan, amounting to a 391 percent annualized interest rate. If the legislature had capped the rate at 36 percent, as some pushed for, the fee for a two-week loan would have been reduced to $1.38.

The reforms that passed the House 72 to 27 Friday would not cap interest rates. Instead, they would limit borrowers to three outstanding loans and $1,500 of debt, prohibit lending to members of the U.S. military or their spouses, and require borrowers to wait a day after paying off a loan before borrowing again.

During an impassioned floor debate Friday, delegates debated whether payday loans help or hurt the state's poorest residents.

Del. Onzlee Ware (D-Roanoke), a supporter of the bill, said payday loans give poor residents a choice instead of having to rely on charities and churches when they need cash.

"The whole point of payday lending is to restore dignity," he said.

But Del. Kenneth R. Melvin (D-Portsmouth) said the industry is taking advantage of the state's most vulnerable residents.

"This is a pox on our state," he said. "These people are being gouged."

Melvin said he hopes Kaine imposes a rate cap.

Staff writer Tim Craig contributed to this report.

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