RICHMOND — If you could make 390 percent on your investment, would you be interested? Sure — who wouldn't?
But what if you knew your return on investment came in the form of exorbitant loan shark tactics that trap people in poverty, takes advantage of their misfortunes and contributes to their hopelessness? Would you still be interested? Unfortunately, many are.
Ann Rasmussen, policy director for the Virginia Interfaith Center for Public Policy, is passionate about her cause.
“It is neither a political issue nor an economic issue for me; it's a moral issue,” she says. But thanks to action taken in 2001 by the Virginia legislature, it's all perfectly legal.
Rasmussen's goal is to get the legislature to close a provision that allows payday lending institutions to charge an annual percentage rate of up to 390 percent to those unfortunate enough to seek their services.
Delegate Harvey B. Morgan, R-Gloucester, sponsored “regulation” of the payday lending industry allowing them to operate in Virginia. Following his lead, the legislature passed the Payday Loan Act of 2002. Since payday lenders claim that they do not charge interest but rather a “fee” for providing a loan, they are exempt from the commonwealth's 36 percent usury law cap. Morgan has since changed his mind.
Although required by the truth-in-lending law to disclose the 390 percent APR, lenders bury the information in fine print and fail to discuss it with borrowers when they make loans.
Payday lending works like this: a person seeking a loan from a payday lender must have an income and a checking account. When he or she seeks a loan, the borrower is required to write a check to the lender for the full amount plus a “fee” of up to $15 per hundred borrowed. The lender holds the check until “payday” when the loan is repaid along with the fee or the check is cashed. If funds are insufficient, the borrower is slapped with charges from the bank as well.
The Virginia Partnership to Encourage Responsible Lending estimates that more than 90 percent of all Virginians who seek payday loans are forced to repeat the experience. Many borrow from a second payday lender to repay the first. The result is often predictable: before long the compounding “fees” create such a deep hole the borrower is unable to get out.
One borrower, in a lawsuit, revealed that her loan repayment amount began in February 2005 at $3,687.50 and rose with no additional amount borrowed to $16,064.26 by April 2006.
Because lending at 390 percent is so lucrative, the number of payday lenders has increased every year until currently, there are twice as many payday lending storefronts as McDonalds in Virginia and three times as many Starbucks.
Morgan and some other legislators want to see payday lenders come under the 36 percent usury cap applied to other lenders. “As the patron of the original payday loan, I stand here urging the repeal of that legislation,” declared Morgan at a press conference in January.
Glenn Oder, R-Newport News, and a member of First Baptist Church there, is also speaking out in opposition to payday lending practices.
In addition, last month the Staunton City Council adopted a resolution urging the legislature to apply existing usury laws capping interest rates at 36 percent to payday lending.
Every state around Virginia has already taken steps to eliminate or limit payday lending. Most recently, on Sept. 18, Washington, D.C. capped interest at 24 percent.
Morgan and Oder emphasize, however, that the payday lending industry and its companion, the auto title loan industry, is very strong and has contributed heavily to the campaigns of politicians throughout the state—including Attorney General Bob McDonnell and Governor Tim Kaine, who received over the past three years $12,015 and $13,500 respectively. Last year the payday lending industry spent $1 million on lobbyists to influence Virginia lawmakers.
Rasmussen suggests several things Virginia Baptists can do to help.
• Contact your legislators to voice your support for legislation that repeals the Payday Loan Act, or that would cap APRs on payday and car title loans.
• Ask those running for election in November to state clearly their position on payday lending. Make it a campaign issue.
• Encourage churches to host information-sharing gatherings in their communities for clergy and laity alike.
• Speak about the issue in church gatherings and in social and professional clubs and in letters to the editor of community newspapers.
• Encourage groups to adopt resolutions urging the legislature to act quickly to bring payday lenders under the usury cap of 36 percent.
“People of faith are called to speak up for the marginalized. We should feel compelled to speak up for them,” says Rasmussen.