The Virginia Senate passed legislation on Thursday that proposes to limit the number of active "payday" loans that an individual can have out at one time. It also calls for a statewide database to track borrowers.
Payday loans are interest-bearing advances made by certain lenders, for a fee, on the speculation of a borrower's upcoming paycheck.
Unlike many short-term consumer loans, which are by state law capped at a 36-percent interest rate, , by virtue of the 2002 Payday Loan Act, are not. Interest rates on these loans can feasibly reach into triple-digit annual percentages.
A proposed state bill sponsored by state Sen. Richard Saslaw (D-Fairfax), while not addressing the percentage rate, would limit the number of loans that an individual may take out at one time. Many critics say perpetual borrowers take out loan after loan, paying one with another in a cyclical chain.
Saslaw's bill limits the number of active loans to three per individual and calls for a statewide database to track the transactions. It also mandates that borrowers wait 24 hours between loans. Also, lenders must wait eight weeks before taking any action against loan defaulters.
Some faith-based organizations, such as the Virginia Catholic Conference, The Virginia Interfaith Center and the Family Foundation of Virginia, have spoken out against the payday loan practice, calling it addictive and potentially harmful.
A report by the Federal Reserve Bank of New York, however, says payday lending "does not fit our definition of predatory."
"To the contrary," said Darrin Andersen, president of the Community Financial Services Association of America. "The report concludes that payday lenders may actually enhance the welfare of households by increasing the supply of credit."
News Source:
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