BY JEFF E. SCHAPIRO Richmond Times-Dispatch
Jay Speer has been lobbying the Virginia legislature since he was a father: 22 years.
And for nearly all of them, while he and his wife raised two sons, who are now out of college, Speer has been fighting the low-cost instant loan industry, arguing that payday and title lenders The auto industry primarily exploits the poor with debts struggling to pay it off, if at all.
For Speer, executive director of the Virginia Poverty Law Center, the industry is now a much smaller target, having been held back by rules Democrats pushed through in 2020, when his party dominated every corner of state government. Even Republicans, longtime friends of lenders, supported the reforms.
Speer’s struggle with lenders may have subsided, but it is by no means over. A little-known settlement in mid-May of a federal lawsuit filed more than three years ago by Speer’s organization and two law firms, Kelly Guzzo of Fairfax and Consumer Litigation Associates of Newport News, says it all.
Under the agreement, 550,000 borrowers here and in your states will not have to pay $489 million in illegal payday loans made over the Internet and for which they were charged 600% interest. Most borrowers will share $450 million in cash repayments. An additional $39 million is for those who paid illegal amounts to lenders.
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Despite its checkered history, Virginia opened up to payday lenders (they are called that because they provide a cash advance against borrowers’ wages) during the 2002-06 administration of a pro-business Democrat, Mark Warner, now a US senator has since cooled off to the industry.
Warner signed legislation sent to him by a Republican-controlled General Assembly, even as top aides pressured him to reject it. One threatened to resign in protest. Warner’s successor, fellow Democrat Tim Kaine, who is not a fan of lenders, tried and failed to broker reforms acceptable to the industry and his opponents.
A 2009 attempt to limit the frequency of lending — led by several House Republicans and a white-shoe law firm with close GOP ties — scared off some lenders. To stay open in Virginia, many changed their business model, operating under a provision of state law that allowed them to charge higher interest rates.
In subsequent years, there would be other unsuccessful efforts to bring the lenders to heel. The industry’s footprint in Virginia expanded in 2011, when the state sanctioned car title loans under which a borrower risks losing their motor vehicle due to nonpayment of a loan. At the time, Republicans held the legislature and the governor’s office.
Finally, in 2020, with Democrats in full control of the statehouse for the first time in nearly 30 years, Virginia adopted sweeping protections under the Fair Lending Act. The measure generated bipartisan support that lobbyists on both sides attribute to legislative fatigue from years of fighting.
At times, the debate was theatrical, overshadowing larger, more persistent themes: that traditional financial institutions (banks and credit unions) showed little interest in small loans, seeing them as risky and unprofitable. Also, competition among payday lenders for a seemingly captive audience was limited because their high-cost products were similar.
Lenders clogged public hearings with ATM workers who had been bused to Richmond, many from Hampton Roads, where there were numerous stores. Chiding lenders as loan sharks, an enemy of the industry, a moving company executive who had tried to pay off an employee’s five-figure debt, would occasionally show up, you guessed it, in a shark costume.
Although it took effect in 2021, the law capped interest and fees on car title and payday loans, setting the interest rate on consumer purchases paid over time at 36%. . The law also created safeguards against online payday lenders based in other states or, as in the case of the May settlement, operated by sovereign Native American tribes insulated from many laws.
The Pew Charitable Trusts reports that Virginia, where lenders got their way through well-placed lobbyists and, since Speer arrived two decades ago with millions of dollars in donations to lawmakers, is one of four states since 2010 to enact extensive protections for payday borrowers. while guaranteeing access to credit. The others are Colorado, Ohio and Hawaii.
“In these states, lenders profitably offer small loans that are paid in affordable installments and cost four times less than typical lump-sum payday loans that borrowers must pay in full on their next payday.” said Pew in an April study of all 32 states. that allow payday loans.
Among Virginia’s neighbors, Washington DC, Maryland, North Carolina and West Virginia ban payday loans, according to the Consumer Federation of America, a consumer rights research and advocacy group. The loans are legal in Kentucky.
The impact of the new Virginia law on lenders is not yet clear, though Pew says it would likely mean fewer stores. The State Corporation Commission’s Office of Financial Institutions is expected to produce an initial snapshot for the legislature this month.
One consequence of the reform: possible competition between banks for small borrowers. Personal finance website NerdWallet says national firms like Bank of America, Wells Fargo and Truist are expected to offer low-interest, dollar-denominated loans. Could this be a magnet for customers nervous about inflation?
It’s all part of a broader makeover of a facet of consumer finance that, in Virginia, was long described as a big company exploiting the little man. Heck, they’re not even called payday loans anymore. By law, they are short-term loans.
Contact Jeff E. Schapiro at (804) 649-6814 or [email protected] Follow him on Facebook and on Twitter, @RTDSchapiro. Hear his analysis at 7:45 am and 5:45 pm Friday on Radio IQ, 89.7 FM in Richmond and 89.1 FM in Roanoke, and in Norfolk on WHRV, 89.5 FM.