Senate introduces payday lending reform legislation

By DENA POTTER
Associated Press Writer
Published: February 12, 2008

RICHMOND, Va. (AP) - Those trapped in debt by payday loans would have dramatically longer to repay a loan under an industry reform bill passed Tuesday by senators who said they wanted to protect the vulnerable while leaving the option open for responsible borrowers.
The Senate waited until the last possible day to introduce its compromise in the form of a substitute to Sen. Phillip Puckett’s reform bill. Tuesday was the deadline for each chamber to complete work on its own legislation.
The House overwhelmingly passed a vastly different bill on Monday.
The Senate bill, which passed the Senate 37-2 with one senator abstaining, wouldn’t limit the number of payday loans a person could have annually like the House version. Instead, it would allow borrowers to enter into a 60-day extended payment plan if they thought they couldn’t repay a loan on time. After the loan is repaid, the individual would be barred from taking out another loan for 90 days.
Borrowers would be limited to two extended periods per year.
It also requires a 90-day cooling-off period for someone who has been in default on a loan for 60 days.
Like the House version, the bill would create a database to track payday loans and limit borrowers to one loan at a time. It also would allow lenders to charge up to 36 percent annual interest on top of fees similar to those already in place.
Neither side seemed satisfied with the Senate version.
“This bill could possibly be worse than the current law,” said Jay Speer, executive director of the Virginia Poverty Law Center. “It sets up an illusion that you may get an extended payment plan.”
Speer and other payday-loan opponents said the most vulnerable borrowers won’t take advantage of the extended payment plan because it severely limits their ability to get another loan. Speer only about 1 percent of borrowers ask for extended payment plans in other states where they’re offered.
Industry officials said they favored the Senate version over the House bill, which caps the number of loans an individual can have at five per year in addition to allowing only one at a time.
Still, they said enforcing the one-loan limit could hurt lenders, possibly forcing some to shut down. Current law requires lenders to pay off one loan before taking out another with the same lender, but that doesn’t stop borrowers from taking out loans with more than one lender. The database would track loans, effectively stopping that practice.
“When you look at the totality of the provisions in it, certainly they try to address the problem borrower in a much more responsible way than the House did,” said Reggie Jones, an industry lobbyist.
Anti-payday advocates also oppose a provision that would give lenders electronic access to customers’ banking accounts. The provision is in the bill in an attempt to regulate Internet lenders, but it isn’t limited to them.
The Senate legislation prohibits payday lenders from opening new stores less than 1½ miles from an existing store, something senators said would stop the proliferation of stores. It also allows borrowers to take civil action against payday lenders who threaten or harass them for payment.
Although initially calling the bill “industry-driven and business as usual,” Sen. Mamie E. Locke, D-Hampton, voted in favor of it.
“This bill is, in reality, smoke and mirrors, but I’m gonna hold my nose and vote for it,” Locke said. “But I hope that in the interim and in the process of this bill moving forward ... that every effort will be made to try to find a way to keep borrowers from getting into the cycle of debt.”
Puckett, D-Russell County, vowed that the bill would be improved further.
“I want to see the bill move forward. I think we have an opportunity to make it even a little bit better, and we need a vehicle to do that, and I think we have that,” he said.
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Associated Press Writer Kristen Gelineau contributed to this story.