If you’re in a pinch, small loans from payday or internet lenders may seem like a good option.
But advocates for low-income workers in Virginia say lenders often end up charging three or four times the cost of the original loan.
A new law passed by the General Assembly on Wednesday seeks to tighten the rules.
Starting next year, small loans that currently operate under a panoply of names and legal codes -- from payday loans to open-end credit -- will now be governed under a single set of standards.
Interest rates will be capped at 36%, and fees charged by lenders can’t exceed 50% of the loan (or 60% for loans greater than $1,500).
Payday lenders fought heavily against the changes, arguing that they are rule-abiding businesses that provide a valuable service to people with nowhere else to turn.
Jamie Fulmer, senior vice president of financial affairs with Advance America, a payday lending company, predicted the move would drive consumers to shadier lenders.
“What this does is eliminate the regulated consumer lending industry in Virginia,” Fulmer said, arguing that his company and regulators received few complaints about their services.
“Consumers weren’t clamoring for this legislation,” he said.
Jay Speer, executive director of the Virginia Poverty Law Center, disagreed.
“We’ve literally talked to thousands of people on our predatory loan hotline with all sorts of complaints about these companies,” Speer said
Speer maintained that the 36% rate would allow businesses to make a profit on loans that sometimes amount to a few hundred dollars.
“They won’t be cheap loans, but they’ll still be affordable,” he said.
Lenders in Virginia charge up to three times more than they do in other states for the same loan, according to research from the Pew Charitable Trust.
The rules will go into effect on January 1, 2021.
Gov. Ralph Northam amended legislation to push the date up six months in response to the COVID-19 pandemic. The legislature rubber-stamped that move on Wednesday.
Payday lenders are also one of the larger donor groups in the Assembly, donating nearly $1 million from 2018 to 2019, according to the Virginia Public Access Project.
