| January 28, 2008 | Volume 83, Number 7 | |
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Payday lendingIf there was ever an issue on which the average Virginia citizen should stand up and be counted, it’s supporting legislation that will put a cap on interest rates for what is known as “payday lending.” While probably the vast majority of people borrow money at some time in their lives — a mortgage, new car or for home improvements — chances are that they shop around for the best possible interest rate. This is just plain common sense. In fact, the lender normally issues a full disclosure statement in which the borrower knows the full amount of interest to be charged over the course of the loan period. A recent study says that the average payday loan borrower pays $793 to borrow only $365 over a period of seven months. This is outrageous! But it’s legal. But the poor who likely would not qualify for conventional loans often have to rely on short-term loans by “payday lenders” who charge an exorbitant rate. Some borrowers have been charged annual percentage rates (APRs) of several hundred percent. If they’re poor when they take out the loan, they’ll certainly be much poorer if and when they pay it off. Poor people who desperately need cash are the ones who are hurt by payday lenders. They can’t get normal credit and they’re at the mercy of those who would take advantage of their plight. They inevitably find themselves trapped in a vicious cycle of debt which is never ending. As we said, it’s legal, but pending legislation can change all that. Fortunately there is a bi-partisan effort to change the laws in Virginia dealing with the current predatory lending practice. There is pending legislation in the General Assembly which would put the rate cap at 36 percent, the same cap that applies to other small loan lenders. While 36 percent still seems a high rate, it’s the best that the legislators can come up with at this time. In neighboring states, the rate is capped at 24 percent. Many people might find it inconvenient or time-consuming to compose a letter or email messages to legislators urging them to support or oppose certain legislation. If so, Virginians can tap into the Action Alert feature of the Virginia Catholic Conference. It’s an easy stretch and can make a big difference as to what laws pass and what laws get scuttled. Putting the cap on the interest rates for payday lending is a step in the right direction. Let your voice be heard.
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