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.