Va. Principles Will Debate Payday Loans

RICHMOND, Va. — Stakeholders from both sides of the payday lending debate are expected to meet in private Saturday in an attempt to reach a compromise on several proposals affecting the billion-dollar industry.

Both sides say they want to protect Virginians from spiraling into debt. Industry opponents say the only way to do that is to cap the annual interest rate on payday loans at 36 percent. Payday lenders argue the cap will put them out of business, so it's best to reform the industry so people still will have a place to turn for quick cash.

Legislators have filed about 20 bills to either reform the industry, cap the interest rate at 36 percent or repeal the 2002 law that allowed payday lenders to charge $15 for every $100 loaned up to $500, pushing interest rates to 390 percent for a two-week loan.

Last year, talks broke down in the session's final hours over an industry-backed reform bill. Both sides say they hope the mediation session will prevent that from happening again.

"I do think it is the best option, because extensive work has become nothing in past years, and this is to me a great hope," said Del. Lee Ware, R-Powhatan.

Ware's reform bill echoes the industry's bill last year and includes a database to track payday loans, limits the number of loans a borrower can have at one time to two, guarantees extra time to repay a loan if needed and requires a one-day cooling off period between loans.

In 2006, about 434,000 people in Virginia took out nearly 3.6 million loans worth $1.3 billion, according to the state Bureau of Financial Institutions.

"It's clear there is a need for short-term loans, small unsecured loans," Ware said. "You look at the numbers it's overwhelming, and I do think we've got to do it in a regulated way."

Ware and other lawmakers aren't expected in Saturday's meetings, orchestrated by Gov. Timothy M. Kaine's office. One of Kaine's top aides will lead the discussion between representatives of both sides, many of which have refused to talk about the meeting.

Kaine favors a 36 percent cap, but this week said he just wants something that everyone can agree upon as long as it protects the poor.

"If I don't think it protects vulnerable people, I'm going to do some surgery," Kaine said without elaborating on changes he may make to legislation that makes its way to him.

Industry opponents said they didn't feel Kaine was backing down from a 36 percent cap, just that he didn't want to go another year without accomplishing anything on the issue.

"I'm sure he feels the necessity to have an open mind so that anybody feels comfortable at the table, but I have no doubts that if we get a 36 percent bill to him he'll sign it," said Sen. A. Donald McEachin, D-Richmond.

Is a 36 percent rate cap possible? "I think this is the best chance we've ever had," said McEachin, who has filed bills for a repeal, a rate cap and to restrict the industry's collection practices.

Payday lenders have said it's not fair to talk about the loans in terms of interest rates, because they charge a fee that does not accumulate. A 36 percent cap would cut profit to $1.38 on a $100, two-week loan, which they say would force them to close up shop in Virginia.