Payday loans prey upon the poor and members of the military. Virginia fights back.

Payday loans are becoming a problem in more and more cities, and the states are having trouble fighting back. Many laws have been passed to regulate these stores, variously known as payday loan, cash advance loan, check advance loan or post-dated check loan businesses. They lend money for two weeks at at time, and charge fees ranging from $15-22 for every $100 borrowed. The borrower writes a check for the amount, plus the fees, and postdates it for two weeks. At that time, they either pay it back or let the store cash the check. 

The borrowers either fail to realize just how expensive these loans can be, or they have little choice and do it anyway. A $22 fee on top of a $100 loan works out to some 572% interest per year, a rate that most anyone would consider usurious. Often promised as fast and easy, these loans are nothing but trouble. Even worse is the fact that these stores tend to proliferate near military bases; they seem to prey upon our poorly paid enlisted personnel. This doesn’t set well with state legislatures, particularly during wartime, and Virginia has decided to do something about it. Here are a few of the steps Virginia’s legislature has taken to fight this ongoing problem.

Lenders may not garnish military pay. If someone from the military owes a payday loan shop money, they may not have it taken out of the debtor’s paycheck.

They may not contact the superior office of the debtor in order to try to obtain repayment, nor may they try to instigate collection proceedings while a soldier is deployed overseas. Collecting from a soldier in Iraq won’t work.

These are recent additions to laws passed in 2002 that regulate this industry. The 2002 legislation put caps on the amount of a loan and set the annual percentage rate that may be charged for late payments at six percent. In addition, regulations require that all borrowers receive written explanations of the store’s policies and that they may no longer be charged to cash the check in which the loan amount was issued.

It remains to be seen if these changes to the law will be effective. These lending stores have a history of circumventing these laws. One popular method is for the store to work with an out of state bank, particularly one in a state with generous laws regarding interest rates. The lenders then claim that the loan is actually processed in that other state and that local laws do not apply. At any rate, it’s a good start, and other states will follow if these laws turn out to be effective. The winners will be the borrowers, who will no longer be victimized by 500% loans.

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