Committee OKs payday-loan bill

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RICHMOND (AP) — The House payday-lending compromise bill cleared its first hurdle yesterday despite some legislators' concerns that it will put the short-term, small-cash lenders out of business.

The compromise was worked out between legislators from both parties after talks between the industry and anti-payday-lending advocates stalled. The bill passed out of the House Commerce and Labor Committee 19-3 and now heads to the full House.

It prohibits borrowers from having more than one loan at a time or more than five per year — numbers that would be monitored by a database. Borrowers would have at least twice as long to repay the loan and would be required to wait 24 hours after paying off a loan before taking out another. Loans would be capped at 36 percent annual interest, but lenders could charge other fees similar to those already in place.

Payday lenders have said a 36 percent cap would reduce profits to pennies and drive them out of Virginia, so legislators allowed them also to charge fees of 10 percent of the loan and $5 for verification purposes.

Now industry officials say that the limit on the number of loans is unfair and that extending the amount of time that borrowers have to repay drastically changes their product.

"If you want to go somewhere and get a term loan, go somewhere else," Reggie Jones, an industry lobbyist, told the committee.

Some legislators said their job was to protect Virginians from predatory practices, not to keep payday lenders in business.

"Will they be able to stay in business? Frankly, I don't care," said Delegate Kenneth R. Melvin, Portsmouth Democrat.

Lenders can now charge $15 for every $100 loaned up to the maximum $500 loan, pushing annual interest rates to 390 percent for a typical two-week loan. Industry opponents say borrowers are encouraged to take out one loan to pay off another, spiraling quickly and deeply into debt.

Last year, Virginians took out more than 3.5 million payday loans.

Legislators who support the compromise scoffed at the idea that it would put lenders out of business, and instead said it retains payday loans as an option for those who need them while protecting those who may abuse the product.

Others — including Delegate W.R. "Bill" Janis, who said he took out a payday loan while in the military in the 1980s — asserted it is not the legislature's job to make personal financial decisions for residents.

"This bill is presumably motivated by some desire to help folks who for whatever reason patrons of this idea believe aren't capable of making well-informed decisions for themselves about what's in their best financial interest," said Mr. Janis, Henrico Republican.

Mr. Janis; Delegate Kathy J. Byron, Campbell Republican; and Delegate R. Lee Ware, Powhatan Republican, voted against the measure.

The committee unanimously approved a bill by Delegate Sam Nixon,Chesterfield Republican, creating a database to track payday loans in case no other reform proposals succeed.