by James A. Bacon
As Chesterfield County continues to debate how extensively to restrict payday lending — a classic manifestation of the do-gooders’ proclivity for imposing their exquisite sensibilities upon the population through government coercion — it is nice to be reminded of a positive experiment to help Virginians with short-term lending needs.
Under former Governor (now U.S. Senator-elect) Tim Kaine, Virginia state government set up the Virginia State Employee Loan Program (VSELP) in partnership with the Virginia Credit Union. Originally intended as a pilot program, VSELP proved so popular that the state has made it permanent. Writes Heather Kerrigan for Governing magazine.
Under VSELP, employees can borrow between $100 and $500 in increments of $100 without a credit check and without reporting to the credit bureaus. Employees can take out up to two loans each year, but can only have one out at a time. The loans must be paid back over six months, with payments coming straight out of employees’ paychecks and into the credit union.
The short-term loans offer a relatively low interest rate, about 25% annualized, compared to rates as high as 584% for some payday loans. The state has issued nearly 8,400 loans since the program began — more than than $9 million in all.
Grafted onto an existing credit union, the program is inexpensive to administer. Only one full-time worker is required to run it. Admittedly, the state has one big advantage that payday lenders do not — the ability to recapture repayments straight out of employees’ paychecks, which eliminates the risk of default.
Bacon’s bottom line: Kudos to the commonwealth for developing a plan that serves the emergency financial needs of its employees. That is the preferable way to deal with the scourge of payday loans — innovation and competition. By providing a superior product, the commonwealth increases, not restricts, the array of consumer choices.
Instead of trying to regulate payday lenders out of existence the goo-goos should stifle their authoritarian impulses and seek ways to provide a better emergency-loan service at a lower price. They can look to VSELP as a model.
