Commonwealth lawmakers on Monday introduced reforms to the state’s payday lending industry that would cap annual interest rates and limit a borrower to five loans each year with a 24-hour”cooling off period” between each one.
The House plan is the latest effort targeting the controversial short-term, high-interest loans. It is backed by at least a dozen delegates, both Democrats and Republicans, who are responding to critics who call the loans predatory. But the effort has sparked protest from industry advocates who call it an undue burden on consumer choice.
“Those who have worked to enact sensible reforms on this industry and break the cycle of debt that ensnares too many Virginians need to embrace this comprehensive plan,” said Del. Glenn Oder, R-Newport News, in a statement. “This is not the easiest thing to do, but it is the right thing to do. The provisions of this measure will provide Virginians who utilize payday loans with protections that are much-needed and long overdue.”
Oder introduced a prior bill that would have established a maximum annual interest rate of 36 percent for payday loans. That cap is preserved in the new reform package, which would allow the companies to establish a $5 verification fee and a loan fee of 10 percent of the amount borrowed.
Other components of the legislation, to be introduced Tuesday, would create a database maintained by the State Corporation Commission to ensure borrowers don’t exceed the new limits, and would prevent lenders from initiating legal action until 60 days after a customer defaults.
Jamie Fulmer, a spokesman for Advance America, said the industry was not consulted during the formulation of the bill and hasn’t had time to fully assess it.
He said the new caveats on the rates would complicate a product that has a “straightforward, upfront fee” and argues consumers shouldn’t be given arbitrary limits on the number of loans they take out.
“Based on first blush, there are some troubling aspects to this bill that very well could make it so we couldn’t operate in Virginia,” he said.
