The Political Role Reversal over Payday Lending

The debate over payday lending is getting surreal. Posing as populist champions of the little guy, Republicans in the House of Delegates want to regulate the payday lending industry. They are aligning themselves on this issue with the likes of the Virginia Organizing Project and the Virginia Poverty Law Center. Meanwhile, industry lobbyists are looking to Sen. Richard Saslaw, the Democratic majority leader in the state senate, to save them.

In the latest iteration of the debate, the House Commerce and Labor Committee has approved a “compromise” that would impose regulations somewhat less onerous than those demanded by the industry’s most vocal foes. In addition to capping annualized interest rates at 36 percent, the legislation would allow payday lenders to charge 10 percent loan origination fees and verification fees of up to $5.00.

However, the bill would impose significant restrictions on lending. No borrower could have more than one outstanding loan at one time (ending the practice in which borrowers would obtain loans from competing vendors, sometimes juggling two, three or more loans at one time). Additionally, no one would be allowed to take out more than five payday loans over a year, and there would be a 24-hour cooling off period between loans.

While the R’s may be billing the bill as a “compromise,” it’s not clear exactly who compromised with whom. Apparently, the industry still opposes the legislation. Reports Jeff Schapiro in the Times-Dispatch: “In a hearing room filed with money store employees, lender lobbyist Reginald N. Jones said lawmakers were threatening the jobs of 2,400 workers at the state’s 800 payday-lending outlets, which last year dispensed nearly $1.5 billion in small loans.”

With the bill likely to pass the full House, the hopes of industry lobbyists now focus on Saslaw, who heads the Senate Commerce and Labor Committee and is widely perceived as being “pro business.”

Adding to the weirdness, former Gov. Jim Gilmore congratulated House Republicans for the compromise, and took the opportunity to jab Mark Warner, his rival for John Warner’s expiring U.S. Senate seat. Said Gilmore: “It is no secret that payday lending stores opened under the leadership of Mark Warner and the bill he signed into law. Their loans are deceptive and they should at a minimum be held to the same standards as other small-loan lenders operating in Virginia. Mark Warner’s decision to adopt this policy was wrong.”

To repeat my position on payday lending: I support marketplace transparency and the prevention of fraud. Payday lenders should fully explain interest rates and fees to borrowers. The law should ensure that consumers fully understand the terms and conditions of their loans. Otherwise, lawmakers need to butt out. If consumers can find better terms elsewhere — from family, friends, churches, banks, loan consolidators, wherever — they are highly motivated to do so. The General Assembly, egged on by a bunch of pious do-gooders who won’t suffer the consequences if payday lenders shut down and deprive borrowers of options, has no business setting the terms of loans.

The Republican Party, it appears, has abandoned the principles of free enterprise that it once embraced. If that leaves the Democratic Party as the standard bearer for free markets, then we’re pretty much all doomed.

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  1. Brian Kirwin Avatar
    Brian Kirwin

    “no business setting the terms of business loans.”

    Huh? Are you saying that payday lenders are out there making business loans?

  2. Jim Bacon Avatar

    No, that was a typo. Thanks for catching it. Correction made.

  3. Larry Gross Avatar
    Larry Gross

    “Asked for comment, Warner spokesman Kevin Hall pointed out that the 2002 legislation came to then-Gov. Warner with “with a veto-proof mega-majority.” Warner tried to amend the bill to track the implementation of the new legislation, but that was also rejected.”

    I also knew that Gilmore would ride in on a white horse… I wonder if he is also wearing George Allens boots?

  4. Anonymous Avatar

    Typical Mark Warner — If there was veto-proof majority in favor of the bill, he had quite a few Democratic opponents, most especially in the Senate.

    Mark Warner is no Jim Webb. Webb, at least, says what he means and works to do what he said he’d do. Mark Warner will say whatever it takes to be elected and then do something else.

    He’s the guy that ran commercials in NoVA promising to protect the community, but then signed a bill that shipped truckloads of NoVA tax dollars south, to be replaced by pennies.


  5. Larry Gross Avatar
    Larry Gross

    so … Gilmore is the guy.. right?


    Many of the Conservative Blogs think Gilmore will beat Warner handily.


  6. Anonymous Avatar

    Larry, I have problems with Gilmore also. He let state spending go well beyond what was reasonable. He should have worked harder to control the growth of spending that made the downturn more difficult.

    But Mark Warner spent millions telling me that he would not only shun tax increases, but also protect the interests of NoVA taxpayers. But he sure didn’t do either.

    I’d simply like winning candidates for office to govern as they campaigned and candidates to promise only what they intend to do. If you want to spend more money to the point of raising taxes, say so. If you don’t think that you can keep a no tax increase promise, don’t make it.

    I have some problems with John McCain on some issues, but I think that he will do what he says he will do. Ditto, with Leslie Byrne. Her policies are generally miles away from mine in many areas, but she does what she campaigns on and doesn’t campaign on what she won’t do. Mark Warner, on the other hand, simply will say what it takes to be elected and then does what he had in mind to do anyway. That’s wrong. We need the rhetoric and the actions to match.


  7. Groveton Avatar

    I have asked my delegate to propose anti-annual bonus lendimg in order to protect top corporate executives. These loans are oftem made for no interst by high end banks to well heeled corporate executives. The lack of interest is a tacit committment for the businessman to provide future business to the bank. Multi-million dollar year end bonuses are used as collateral in order to get money from these swank storefront lenders. Many businessmen have been severly hurt as they tried to carry large bags of cash to their BMWs. Additionally. winds sometimes blow several $100 bills out of the bags and down to the poor people on the street below. Havoc ensues.

    Finally, the stock options traded for the millions in cash are often found to be worth far more than the cash itself leaving the lending a centimillionarie while the borrower is left worth less that $25M.

    This barbarity has to stop.

  8. Larry Gross Avatar
    Larry Gross

    TMT – I pretty much agree with you though I thought Warner didn’t do such an awful job – overall.. given the tough budget environment he had to deal with.

    My standard.. is that they have to work with both sides of the aisle – not everyone.. some are just not going to do anything other than partisan games.. but if the Gov puts something on the table that gets support from both sides.. then I see that as .. not blinking…

    and then it’s a plus if the say what they do and do what they say…

    but I take anything that most say in terms or promises about things that they don’t actually have total control over..with a grain of salt.

    I though Gilmore was a terrible Governor… it took most of Warner’s term to clean up the budget fallout … and I trace the beginnings of the really partisan activities in the GA to his term.

  9. the insurgency agrees completely: transperancy is everything, beyond that people make their own choices, just like I dug this morass that I am currently gesturing and mumbling from.

  10. Insightful. I like this. Will try to see whether the information provided herein is useful or not by the specific outcome after putting into use in real world practice. Thanks.

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