By Bill Turque
Washington Post Staff Writer
Thursday, November 22, 2007

A Fairfax County supervisor wants to push the next General Assembly for tighter restrictions on payday loans, charging that some lenders push the economically vulnerable deep into debt.

The county attorney's office has ruled that local governments have no authority to regulate payday lending businesses, which operate under the state's Payday Loan Act. Supervisor Gerald W. Hyland (D-Mount Vernon) wants to make payday lending a part of the board's 2008 lobbying effort in Richmond.

The board is scheduled to adopt its legislative program Dec. 3, finalizing the list of proposed state laws it will support or initiate. Among the other measures under consideration is one that would strengthen the county's ability to eliminate residential overcrowding and other neighborhood code violations, increase nursing home staff training and amend current law to permit localities to make grants to nonprofit groups or other associations to beautify communities and prevent neighborhood deterioration.

Payday lending involves customers borrowing, for a fee, modest amounts of cash against a future paycheck. Although barred in 11 states, it has become an enormous business in Virginia. In 2005, more than 445,000 Virginians took out nearly $1.2 billion in such loans, according to state figures.

The industry has come under criticism from consumer groups that say it encourages low-income wage earners to take on dangerous levels of debt. State law allows these businesses to charge $15 for a two-week, $100 loan, which amounts to a 391 percent annualized interest rate.

"Some of these institutions prey upon an economically vulnerable segment of our population, as well as our military," Hyland said at an Oct. 15 board hearing. "They exploit their need and perpetuate a cycle of debt which can take years to recover or leave them in financial ruin."

The independent Virginia cities of Staunton, Harrisonburg and Waynesboro have passed resolutions asking state lawmakers to impose new regulations.

The 2007 General Assembly considered a dozen bills that would have regulated, reformed or even done away with the industry. None of the bills was enacted. The principal measure, sponsored by Sen. Richard L. Saslaw (D-Fairfax), would have limited consumers to no more than three loans totaling $1,500 at any one time and created a statewide database to monitor loans.

But negotiations between proponents and the industry collapsed over the issue of a cap on annualized interest rates. Supporters wanted a ceiling of 36 percent, which would have dropped the $15 fee for a two-week, $100 loan to $1.38. Lenders said it would force them out of business.

The industry has been trying to preempt new regulation. Last week the Community Financial Services Association of America, which represents about 60 percent of payday loan businesses, began requiring all member companies to use poster-size displays to disclose fees. It is also launching a Web site to advise consumers on how to use payday advances responsibly.