Watch Out, Poor People, the Do-Gooders Want to Help You

Virginia is doing such a good job of running state government (see the previous post) that the General Assembly now feels competent to tell lenders how to conduct their business. In the latest iteration of the payday lending saga, committees in both the state Senate and House of Delegates have passed a bill that creates complex conditions on the issuance of the short-term payday loans.

Jeff Schapiro describes the new regulatory regime as follows in the Times-Dispatch:

The new proposal — disparaged by lenders and their opponents — would restrict borrowers to one loan at a time. But the bill allows 10 loans a year — a level that troubles critics. It also would block borrowers from drawing another loan for 45 to 60 days if they’d had five within 180 days.

The length of the so-called lockout — the period of time a borrower would be ineligible for another loan — would be determined, in part, by what the customer owed.

The proposal caps interest rates at 36 percent but largely preserves pricey fees that lenders collect. The 36 percent figure is an important symbol for the industry’s critics because it is the maximum allowed by law.

Borrowers who promptly pay the five loans would have to wait only 45 days. But those who can’t repay on time would be eligible for a 60-day payoff plan and then would be prohibited for additional 60 days from taking another loan.

Further, the base cost of a loan would rise. Now $15 per $100 borrowed, it would increase to $20, pushing the price of the maximum $500 loan from $75 to $100. But because the loan must be repaid over a longer term — in the case of the typical borrower, four weeks rather than the current two — legislators say its cost would actually be lower.

Got that straight?

This bill looks like it’s destined for passage, and there’s a good chance that Gov. Timothy M. Kaine will approve it. The lobbyists and legislators will pat themselves on the back for a job well done. Then do-gooders will move on to other meddlesome good deeds. Will anyone bother to track the repercussions of the bill? Will anyone be able to measure whether poor and working class people wind up any better off than they were before? Will anyone notice if there’s a surge of bounced checks, or an increase in loan sharking, or a rise in personal bankruptcies?

I’m betting that no one will notice, or care. Payday lobbyists predict that some lenders will go out of business, foreclasing an option for at least some people in financial distress. But the lobbying-and-media circus will move on to the next cause of the day, and poor people will be forced to find whatever other means they can to make ends meet.

Share this article


(comments below)


(comments below)


  1. Anonymous Avatar

    The depth of your compassion for the poor is unparalleled in the universe.

    Give me a break…you couldn’t care less about how this affects low income families. All you care about is keeping businesses open, regardless of their practices.

    The fact is that prior to 2002, when payday lending was legalized in Virginia, poor people were still poor. They are still poor today. payday lending didn’t help – it just put people in a cycle of debt that many simply can’t get out of.

    That said, I agree with you on one point: this bill sucks. It won’t fix the problem and the payday industry will find a way to circumvent it anyway.

    This is, as you say, simply a vehicle for legislators to claim that they did something when in fact they did nothing at all.

  2. Groveton Avatar

    Anyone who hopes to speak for the poor in Virginia should read Joe Bageant’s book, “Deer Hunting With Jesus”. His describes the reading level of some of the working poor in Winchester, VA. Once you read Bageant’s book you start to understand why full disclosure in sub-prime mortgagues and payday loans just won’t cut it.

    Great book – even if you are not a liberal.

  3. Jim Bacon Avatar
    Jim Bacon

    Actually, Anonymous 8:52, I do care very much what happens to poor people. And I think it’s dreadful that so many are caught on a treadmill of debt. Without question, the problem that the do-gooders are trying to address are very real. I’m just skeptical that their “solution” — micro-managing the payday loan industry — will do any good.

    Here’s one thing you can count on. When the do-gooders have gone on to some other noble cause, the payday lenders will still be around (at least those that don’t go out of business will be around). And they’ll spend 100 percent of their time and energy thinking of ways of circumventing, or modifying, the rules that hamstring them… I can assure you that in most instances, those circumventions will be reflected in higher costs to borrowers.

    Meanwhile, if borrowers don’t have recourse to payday lenders, as onerous as their terms are, what options do they have? I don’t hear anyone talking about the options. Do they get evicted from their apartment? Do they not repair their car and fail to show up for work? Being poor and in debt sucks. But taking away borrowing options doesn’t make them any less poor or any less in debt.

  4. Mike K Avatar

    I frequently hear the “well, without payday lenders, folks will have to turn to loan sharks” argument. I couldn’t disagree more.

    First, payday lenders are effectively loan sharks.

    Second, at least a loan shark can’t irreparably damage your credit history, which would have a longer lasting effect on a person’s future financial life outcomes than a loan shark’s placement of a dead fish on his debtor’s doorstep.

    While I agree that this pseudo reform is hardly reform, I think the broader picture of why do so many people need to get their hands on cash so quickly to justify the existence of this industry in the first place is of greater concern. Is it bad financial planning that reflects on our schools? Is it an ultra-consumerist ideology that reflects poorly on our society? I’d rather get to the root of that than put a complex framework on a what’s basically a symptom.

  5. Anonymous Avatar

    Maybe we need some kind of Decoupling plan like proposed for the utilities: the more often you lend to the same borrower, the higher your tax on the transaction.

    Find some way to “incentivise” the lenders to make the borrowers use less.


  6. Accurate Avatar

    Here in Oregon they passed a similar bill – here are the ramifications. First, 90 – 95% of the payday loan operations are gone. Second, pawn shops are doing a booming business. Third, and this one is only a guess, banks are raking in tons of money on bounced checks.

    Compare the cost of a bounced check versus what a payday loan operation charges … and you say the payday loan operation are sharks??? The poor really don’t have many avenues of credit and taking payday loans away deprives them of one more option. It may not be a great option, but if you have a choice between taking a payday loan to buy medicine versus doing without the medicine – what would you do?

    As for the folks who talk about ‘ruining credit’ – the VAST majority of folks who use payday loan operations have horrible credit; to a point that NO ONE else expect a payday loan outfit will loan them money. It would be nice if the reason they borrowed money was good – like medicine, like fixing a car so they can get to work, etc. The truth is they do it for all sorts of BAD reasons too. But how far do you go to protect/help these folks? Are they not adults? Should they not be given the ability/responsibility to run their financial lives as they see fit?

    Like I said, the pawn shops around here are doing quite well; and the poor now have one less place to get money when they need it.

  7. Groveton Avatar

    Is it fair for the government to mandate that the terms and conditions of the payday loan are written is such a manner that a person with a 7th grade reading level could understand all the important points?

    I have never taken a payday loan so I can’t say whether the documents are clear of confusing. However, I have taken out several mortgages over the years (always 15 year, fixed). There is no possibility that I could understand all the jibberish in the mortgage. So I hire a lawyer. And the lawter and I go through the mortgage paragraph by paragraph. And while I have not had my adult reading comprehension tested – I believe that it would rate well above the 7th grade level.

    Remember the old TV show “Happy Days”? What was that one line from the song? “Easy credit rip offs”?

  8. Jim Bacon Avatar
    Jim Bacon

    Groveton has the right idea — the General Assembly is within its rights to ensure that payday borrowers are fully informed and *clearly* informed of the terms and conditions of their loan. It is clearly within the proper scope of government to discourage fraudulent lending or anything that borders on fraudulent. Terms and conditions should be totally transparent.

    After that, let the borrower decide whether he’d prefer to run the risk of getting on the payday loan treadmill, or bouncing a check, or pawning his iPod.

  9. Anonymous Avatar

    I’ve said this before on this forum, and I’ll say it again:

    New concepts like and the gentleman who won the Nobel Peace Prize for microfinance will make payday lending a thing of the past.

    Will the “Do-gooders” then rush in to save the hard working payday lenders who have suddenly befallen hard times?

    Just sit tight folks. There are people out there who are smart enough to close down a questionable industry in despite what measures governments enact.

    Aren’t free markets wonderful?

  10. Anonymous Avatar

    One of the provisions that everyone, including the industry, agrees with is the creation of a datebase to track loan usage. If the point was to end the cycle of debt with people taking out an average of something like 10 loans a year, we should be able to see if the “reforms” are making a difference. Some of the unintended consequences will still not be seen, but there is enough scrutiny on these changes that people will certainly be watching for some of the repercussions you raised.

  11. Payday Loans Avatar
    Payday Loans

    I am so sick and tired of the government trying to regulate everything Americans do!!! What is next? Are they going to tell me how many pairs of shoes I can own, or how many credit cards I can have. They are already trying to put the payday loans business out of business. At least my local payday lender has cash on hand, which is more than can be said about banks these days.

Leave a Reply