
by James A. Bacon
A bill capping financial loans to a maximum of 12% interest passed the state Senate Monday. If enacted into law, Virginia would go from having one of the most permissive caps among the 50 states to perhaps the most stringent. The measure could have a debilitating effect on lending to people with low credit ratings, effectively shutting them out of legal lending markets.
The most astonishing thing about SB 1252, sponsored by Senator Lamont Bagby, D-Richmond, is that it passed with significant Republican support. Only six Republicans voted against it; the rest voted for it, along with all the Democrats. If the measure passes the House as well, I hope that Governor Glenn Youngkin, who as a successful businessman has a basic grasp of economics, will veto it.
The usual justification for capping interest rates is that high rates on credit cards, consumer loans, consolidation loans and payday loans can trap people on a treadmill of indebtedness, with interest charges piling up faster than borrowers can pay them off. To be sure, this is a real problem, and I don’t pretend it isn’t. The question is whether the cure is worse than the illness.
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