House and Senate pass payday lending reform compromise

RICHMOND, Va. (AP) - Legislators ended three years of debate over payday lending Thursday by passing a package of reforms that place broad restrictions on the short-term, high interest lenders.
The bills would extend the amount of time borrowers have to repay a payday loan and effectively limit how many borrowers can get each year.
Gov. Timothy M. Kaine indicated he would sign the legislation. He said he was disappointed last year when an industry-written bill was pulled in the session's final hours for fear he would limit the annual interest lenders could charge, something they said would drive them out of the state.
"The last two years we have missed opportunities to protect vulnerable people by people digging in their heels on one side or the other or in some cases both," Kaine said.
The bill passed the House 91-9 and the Senate 37-2. Following a procedural vote, they head to Kaine.
Legislators on both sides called the reforms the most restrictive in the country while acknowledging neither side got exactly what it wanted.
"While this matter may be imperfect, it is the product of imperfect people in an imperfect system," said Sen. A. Donald McEachin, D-Henrico, an industry opponent. "It is the best that we could do at this time. It is considerably better than the current system."
Legislators met behind the scenes for weeks to come up with the compromise that passed Thursday, two days before the session's scheduled adjournment.
Sen. Kenneth Stolle, R-Virginia Beach, said legislators had a "torturous task" of trying to work out an agreement that preserved the right of responsible lenders to get the cash advances while protecting those who take out one loan to repay another, sinking deep into debt.
"It's not a perfect bill. I think it is much better than many people thought we would have at the end of the session," he said.
The legislation establishes a database to track loans. Borrowers would be limited to one loan at a time and would have two pay cycles to repay it. If a borrower takes out five loans over six months, he would either be prohibited from getting another loan for 60 days or forced to enter into a 60-day extended payment plan and then be barred from taking out another loan for an additional 90 days.
At any time, a borrower can request the extended payment plan and its 150-day lockout, but only once per year.
Amendments put on the bills Thursday extended the lockout periods and required lenders to orally inform individuals about extended payment options instead of just putting it in writing.
Del. Lee Ware, R-Powhatan, reminded legislators that the restrictions will affect borrowers as well as lenders. Last year, Virginians took out more than 3.5 million payday loans.
"An anaconda can also be described as restricted, but we know the result when he's done restricting," said Ware, who voted against the bill.
Payday lenders said the legislation will end up hurting those who use the loans responsibly.
"While we are wholly supportive of efforts to address those who may not use the product as intended, it's not appropriate to paint everybody with the same broad brush," said Jamie Fulmer, spokesman for Advance America, Cash Advance Centers Inc., the nation's largest payday lender. The company has about 150 stores in Virginia.
The industry spent millions of dollars on advertising and lobbying efforts over the past year and donated more than $310,000 to legislative campaigns. Fulmer said the blitz was needed to clear up misconceptions about the product.
Currently payday lenders charge $15 for every $100 loaned, with a maximum loan of $500. The loan is due back on the person's next payday, typically two weeks.
The legislation would allow lenders to charge 20 percent of the loan, plus 36 percent interest and a $5 fee to cover the cost of the database.
Fulmer said he feared consumers will be turned off by the new, complicated fee structure.
"This is the launch of an entirely new product for consumers here and we have big questions if this is a product they even want," he said.
Industry opponents acknowledged the compromise was best that could have been done this year, but said it doesn't go far enough to protect vulnerable borrowers.
"For us, this isn't a win," said the Rev. C. Douglas Smith, executive director of the Virginia Interfaith Center for Public Policy.
"For (lenders), they see it as a problem because they're losing part of their bottom line. We're not concerned about their bottom line, and it's a shame that the General Assembly was so concerned about that."
The bill goes into effect Jan. 1, 2009, to allow time for the database to be established. Both sides hinted that they may be back after then to try to change the law.
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The bills are HB12 and SB588.
On the Net: http://legis.state.va.us