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.