Two Virginia Baptist state legislators are at the forefront of the effort to rein in so-called “payday loans.”
Virginia Senate Majority Leader Walter A. Stosch, a member of Monument Heights Baptist Church in Richmond, and Delegate John O'Bannon, a member of River Road Church, Baptist, in Richmond, are both sponsoring bills that would repeal the law that permits usurious interest rates.
Payday lending is the practice of using a check as collateral for a two-week loan. To qualify, borrowers need a checking account and a steady income from a job or Social Security. There is no credit check, and the loan offer is not based on a borrower's ability to repay. To get a loan, a borrower gives a payday lender a personal check. In return, they receive cash minus the lender's fees, which are $15 for every $100 borrowed.
That rate translates into a 391 percent annual percentage rate.
Borrowers must pay back the full amount in two weeks. Often they take out another loan to “re-borrow” the money, often called a “rollover.”
Statistics from the Virginia Bureau of Financial Institutions show that the average payday loan customer pays $766 to borrow $355, taking out almost 13 payday loans per year.
Payday lending exploded in 2002 when the Virginia General Assembly passed the Payday Loan Act, exempting payday lenders from the existing small loan interest rate cap (36 percent APR). Since then, almost 800 locations have sprung up across the Commonwealth.
A broad based statewide coalition including multiple faith-based groups have organized to tackle the problem of predatory lending. The Virginia Partnership to Encourage Responsible Lending (VaPERL) has brought together people of faith from across the political spectrum to encourage the Virginia General Assembly to enact legislative changes. Two weeks into the session, the Senate passed a measure to regulate the practice but not cap interest rates. The House of Delegates was expected to take up the issue last week.
“The faith community is an integral player in this discussion,” VaPERL said in a statement. “During biblical times, abusive lending practices were addressed by instituting strict standards, including banning the charge of interest to the poor (Exodus 22:25). Likewise, in the story of Zaccheaus, Jesus commended him for promising to repay the excessive fees he had exacted from the oppressed (Luke 19:8-9). Today, in modern times, predatory lending practices exploit low to moderate income people, those that the faithful are called to protect.”