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Payday Loan Battles in Two States

[Feb 16, 2009.]


A group protesting against payday loans has recently taken to the streets in Virginia. Demonstrators were calling on the state legislature to tighten the regulation of payday loan practices.

Frozen Out in Virginia
According to the Rocktown Weekly News, last Thursday saw about 10 protestors from the Virginia Organizing Project--a grassroots group based in Charlottesville, whose membership is mostly made up of students from James Madison University--met outside the LoanMax outlet in Harrisonburg VA. They carried placards and handed out leaflets outside the store in freezing temperatures.

Warm Welcome
In fact, it was so cold (the temperature that day did not get above 25 degrees) that LoanMax managers took pity on the youngsters and invited them into the warm building for hot coffee.

The protestors claimed that legislation enacted by Virginia's 2008 General Assembly did not go far enough in restricting the payday loan industry, which, they claimed, had found a legal loophole. Apparently, the state allows a lender to charge effectively what rates it likes on any loans that attract no interest or fees in their first 25 days. The demonstrators alleged that payday lenders had engineered loans that exploited this loophole.

Campaigners in Montana
Meanwhile, in Montana, campaigners have endorsed House Bill 396, which seeks to cap annual payment rates (APRs) on payday loans at 36 percent. The Billings Gazette reported that the bill's sponsor, Rep. Bill Wilson, D-Great Falls, had told the House Business and Labor Committee: "This industry thrives upon the victimization of vulnerable repeat customers. The rates these lenders charge are unconscionable and amount to nothing less than legalized loan-sharking."

Lenders' Case
Of course, this is a familiar charge to payday lenders, whose defense rests on three claims. First, payday loans are typically cheaper than bounced check, bank overdraft fees, and credit card late payment penalties. Second, payday lenders generally welcome regulation that restricts the abuse of the system by irresponsible borrowers, who--they point out-- are bad for business. And thirdly, payday loan rates are often $15 for a $100 14-day loan. That translates into a triple-digit interest rate only if someone keeps rolling the loan over for a full year. When the money is repaid promptly, most of its cost is taken up in administration.


About Author:

Peter Andrew has been writing about -- and for -- business for more than two decades. For the last couple of years, he has found himself increasingly specializing in the U.S. financial sector.

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