Assembly deals with issue of payday loans

Del. Ed Scott, R-Madison / Culpeper Star Exponent
Published: February 13, 2008

The General Assembly's crossover deadline of Feb. 12 brought many issues to resolution this past week.

In many cases where differences could not be resolved, legislation has failed or been carried over to the 2009 session.

On one important issue, a consensus and a possible solution to a contentious issue appear to have been reached in the House of Delegates.

Obtaining a payday loan in Virginia is as simple as writing a check. Anyone who has a checking account is qualified to take out a loan. The payday lender will charge the borrower $15 for every $100 that is loaned. The maximum a borrower can take out is $500.

Originally viewed as a source for small short-term loans that were not available elsewhere, concerns have arisen about the interest costs and potential for borrowers to get caught up in a cycle of expensive revolving payday loans.

Previous efforts to abolish or reform payday lending were unsuccessful, but meaningful reform appears to be forthcoming in legislation that passed out of committee this past week.

House Bill 12 has a 36 percent annual interest rate cap on borrowed funds, along with loan and verification fees that reflect the short- term nature of these transactions. It also calls for the establishment of a database to ensure that no borrower has more than one outstanding payday loan at one time and that borrowers are limited to five payday loans per year. The bill applies to payday lenders making loans over the Internet as well as those with a physical presence in Virginia.

The bipartisan work that brought this legislation to the floor of the House of Delegates is significant. Members of the House Republican leadership and the bill's Republican patron, Glenn Oder of Newport News, worked with leading Democrats to advance a measure that has broad public support from numerous groups, including the Family Foundation, the Virginia Interfaith Center for Public Policy and the AARP.

Virginia is the No. 1 state in the nation for business. One of the reasons for this lofty rating is the relative lack of burdensome regulations on business.

Unlike previous unsuccessful measures that would have abolished or restricted payday lending to the point of making it unprofitable, House Bill 12 appears to allow a reasonable return on investment.

At the same time, it protects consumers from getting trapped in a cycle of very expensive debt.

House Bill 12 will face further scrutiny in the Senate. If it passes and is signed by the governor, it may be one of the signature accomplishments of the 2008 General Assembly session.

The House of Delegates is often written about as a partisan chamber. As much as this bill is evidence of policy advancement on a contentious issue, it is also proof that much of the work of the House is not about partisan politics, but about what is best for Virginia. 

Del. Ed Scott, R-Madison, represents Culpeper in the General Assembly's House of Delegates. E-mail