- The Washington Times - Tuesday, February 5, 2008

RICHMOND (AP) — Borrowers would have longer to repay a payday loan right away but would be limited in how many they could get each year under a compromise announced yesterday by members of the House who say they want to protect Virginians from getting trapped in debt without putting the lenders out of business.

Tired of talks between the industry and anti-payday-lending advocates going nowhere, Delegate Terry G. Kilgore, Scott Republican and chairman of the House committee that deals with the issue, brought legislators from both parties together to work out the compromise.

Industry opponents got their 36 percent cap on the annual interest rate lenders can charge, but the legislation allows lenders to charge other fees similar to those already in place.

Borrowers would have twice as long to repay the loan. Currently, the loans are due on the borrower’s next payday — typically two weeks — but the new plan calls for a loan term at least twice the borrower’s pay cycle.

A database also would be put in place to track the loans to make sure a borrower couldn’t have more than one at a time and no more than five a year.

“People who need these loans need them right away, and because these may be one of the few sources of money for them, they are typically going to pay more for loans. But this is manageable,” Delegate Kenneth Melvin, Portsmouth Democrat, said at a press conference with Mr. Kilgore and other legislators.

Currently, lenders can charge $15 for every $100 loaned up to the maximum $500 loan, pushing interest rates to 390 percent for a two-week loan. Under the proposed legislation, lenders could charge a fee of 10 percent of the total loan, a $5 verification fee and then 36 percent interest on the loan.

Where before a $300 two-week loan would cost $345, under this proposal, it would cost about $338 over four weeks.

Industry opponents, who have said a 36 percent cap was the only way to protect people, say they can support the new fee structure because the legislation limits the number of loans borrowers can get.

In 2006, about 434,000 people in Virginia took out nearly 3.6 million loans, meaning borrowers averaged eight loans apiece.

“We know that 36 percent was the easiest way to do it, but this is a different path to Grandma’s house and as long as at the end of the day, people can afford gingerbread cookies, we’ll be OK,” said the Rev. C. Douglas Smith, executive director of the Virginia Interfaith Center for Public Policy.

Industry officials have said a straight 36 percent cap would reduce profits to pennies and drive them out of the state. They object to what they call a confusing rate structure and an arbitrary limit on the number of loans in the new plan.

“The notion that compromise comes in the form that prohibits companies from offering a product doesn’t do anything but drive the product out of the state,” said Jamie Fulmer, spokesman for Advance America, Cash Advance Centers Inc., the country’s largest payday lender.

Industry officials also say the provision that doubles the time borrowers have to pay off loans changes the whole dynamics of their product, which was intended to provide short-term cash for those with nowhere else to turn.

Virginia would become the only state to limit the number of loans that a person can take out annually. Other aspects of the legislation are taken from laws in effect in states such as Florida.

“You can’t sort of go to one state and take one feature of one law, then go to another state and take a feature of that law and try to cobble them all together and say that that’s reform and that’s compromise,” Mr. Fulmer said.

The legislation will be added today to a bill sponsored by Delegate G. Glenn Oder, Newport News Republican, and heard in Mr. Kilgore’s House Commerce & Labor Committee.

A Senate committee heard testimony on numerous bills to either cap the interest rate, repeal the law that allows payday lenders to operate or place other reforms on the industry yesterday afternoon. A subcommittee will sift through those proposals later this week and is expected to have a recommendation next week.

House legislators said they hope the Democrat-controlled Senate, which has not been receptive to an interest rate cap, will support the compromise.

“We know what the legislative process is and we hope that with a good vote out of the House that will send a message to the Senate that we’ll be able to work something out,” Mr. Kilgore said.

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