City asks state to cap payday lending

Back in 2004, Belinda Carter and her husband borrowed $600 from a payday lender. Their van, the couple’s only means of transportation, needed emergency repairs. Two years and nearly $2,000 later, she’d finally paid off the principal and its soaring interest.

"You make the mistake of getting into something. And then you can’t get out of it. When you don’t have credit, you turn to anything. And it’s worse than going to a loan shark. Because a loan shark probably will let you out…they might kill you first," says Carter, punctuating her words with a rueful laugh. "So you might as well be with a loan shark."
 

If the General Assembly doesn’t cap payday lending interest rates, City Council will consider ordinances that would limit businesses like this one on Carlton Avenue.

Last month, Charlottesville City Council joined other Virginia cities to petition the state General Assembly to cap the annual percentage rate (APR) of payday loans at 36 percent. Currently, most lenders charge borrowers, who are predominantly poor, $15 interest for every $100 borrowed—per week. The APR on these loans can balloon to 391 percent, trapping borrowers in a vicious cycle of debt.

At its October 15 meeting, Council put a request to cap payday lending at the top of its Important Policy Positions sent to Richmond. On November 5, it considered going a step further by sending to the General Assembly a resolution requesting that the state cap interest at 36 percent and prohibit lenders from gaining access to customers’ bank accounts. Seven other Virginia cities have adopted this resolution, while Norfolk has put in place zoning ordinances to limit the number of lenders.

"I think Council completely agreed that the current situation with payday lenders being able to charge such outrageous rates of interest can really put people in a big bind," says Mayor David Brown. "A short-term solution is to try to put some restraints on the payday lenders. The long-run solution is to make sure everyone, including low-income residents, has access to mainstream banking."

If the General Assembly votes against the cap, which it did last year, Brown says that the city will consider trying to regulate lenders through zoning laws, a la Norfolk.

But that does little to help people like Carter, who says that she was forced to take out another payday loan last December. Unable to pay the balance in full, she tried to work out a payment schedule with the lender, offering to pay $100 installments.

The lender refused and instead ran her check they’d been holding as collateral, knowing that Carter didn’t have the funds in her account to cover it. Because she still has an outstanding loan, Carter would not identify the Charlottesville company.

"Why would you refuse my money and not work it out with me?" she asks, incredulous. "But that’s what they did."

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