Lynchburg joins fight to curb payday lending industry

Alicia Petska / Lynchburg News & Advance
Published: January 12, 2008

With the General Assembly kick-starting a new session, dozens of communities representing almost half the state's population are looking for it to restrict the booming payday loan industry.

Last week, Lynchburg became the newest member of this grassroots movement, with City Council's passing a resolution that called for a 36 percent interest cap on the short-term loans.

Currently, payday loans in Virginia come with a flat 15 percent service charge. On a two-week loan - the average seen within the industry - that's the equivalent of a 391 percent annual interest rate.

"This is really just something to say the General Assembly needs to fix this," said Councilman Joe Seiffert, who was initially unsupportive of the resolution.

In comments just before the vote, Seiffert called the loans "usurious" and predatory, but also acknowledged there was a demand in the community for them.

In Lynchburg, state records show there are 22 licensed payday lenders, almost 1 for every 3,000 residents. Seiffert questioned whether it was government's role to prevent people from using their lender of choice.

"It's kind of a catch-22. How do you protect people from themselves-" he asked. "I do think it needs to be tweaked, though, and I think the General Assembly needs to fix it so in the future people can't just keep rolling (their loans) over, because they just keep getting deeper in debt."

The local resolution - which was not as stern as some passed in other areas - was also supported by Mayor Joan Foster and councilmen Ceasor Johnson and Mike Gillette.

Opposed were Vice Mayor Bert Dodson and councilmen Jeff Helgeson and Scott Garrett, who argued that payday lenders fulfilled an important need among consumers and questioned whether interest restrictions would do more harm than good.

Payday representatives have fought hard against interest ceilings, saying it would destroy their profit margins and drive them out of business. Under a 36 percent cap, the fee on a $100 loan would drop from $15 to $1.38.

According to advocates with the Virginia Partnership to Encourage Responsible Lending, Lynchburg became the 51st community to join what it dubbed the "36% Movement," an effort started last September in Staunton.

Those communities - which include Amherst County, Appomattox County, Charlottesville and Roanoke - make up 16 percent of all the state's towns, cities and counties.

They also represent more than 3.5 million people, or 46 percent of the overall population.

"This has gotten the issue out to the public in a way we haven't been able to do in the past," said Dana Wiggins of the Virginia Poverty Law Center. "The local governments have actually been able to bring a wider understanding to the public of what payday lending is and how people get trapped by it."

A representative of Advance America, the country's biggest payday lender, questioned how successful the campaign had really been, though, noting that a majority of communities didn't participate.

"That doesn't seem to be a large number," Jamie Fulmer, the company's director of investor relations, said of the latest tally of supportive communities. "Especially with all the effort that's gone into getting the localities to join."

Champions of an interest cap hope the local resolutions will prove convincing among state legislators, who've struggled with the issue of payday regulation.

Bills proposing a cap have failed as recently as last year. New legislation has already been introduced this session calling for everything from a cap to an outright ban of the industry to one measure that would give localities the power to set their own interest rates.

The Lynchburg resolution, which was passed last Tuesday, was set in motion by one lone legal aid attorney, who resurrected the issue before City Council after that body already dropped the issue once last fall.

Jeremy White, who spoke on his own behalf and did not represent the views of his employer, came with the support of groups such as the YWCA and the Lynchburg Community Action Group.

He said he was hopeful the grassroots movement could affect a positive change within the state.

"I think it's already caught some attention," he said. "The interesting thing is this only started in September, so this has all happened in a relatively short period of time."

"This comes down to what you think is right and fair and just," he added. "If payday lenders cannot come up with a business model that can succeed on 36 percent then, God help me, that's

ridiculous."