Payday loans cap supported

Influential allies of payday lending are turning against the industry, raising the stakes in the fight over legislation to clean up the high-cost, instantloan business.

A bipartisan group of House leaders yesterday proposed a 36 percent cap on interest rates, limiting loans to five per year and no more than one at a time, but allowing lenders to collect a 10 percent fee on loans, which are now restricted to no more than $500.

Supporters of House Bill 12 include Speaker William J. Howell, R-Stafford, and House Commerce and Labor Committee Chairman Terry G. Kilgore, R-Scott, both of whom last year sided with lenders in opposing a rate cap; also Del. Dwight Clinton Jones, D-Richmond, head of the Legislative Black Caucus, for which a clampdown on payday loans is a priority.

Later, Senate Republican Leader Thomas K. Norment Jr., R-James City, another friend of payday lenders, told the industry's lead lobbyist, Reginald N. Jones, that if a deal is not reached this year, "I could be convinced the best thing to do might be to abolish the industry."

Yesterday's developments indicated that, despite the millions of dollars lenders are spending on lobbying, contributions and advertising, lawmakers are wearying of an issue that is inflaming constituencies within both political parties and is seen by a growing number of local governments as destabilizing communities through mounting personal debt.

"We've got to get rid of the issue this year," said Sen. John S. Edwards, D-Roanoke, who last year backed industry-written safeguards. "There is either serious reform or just cap it."

The industry vowed to fight on, depicting the House plan as unfair to its customers in need of small loans and a death sentence to money stores whose profits would be sharply reduced. An executive of the industry's trade group, former South Carolina state Sen. Tommy Moore, complained that it had been shut out of talks on the House bill.

"In essence, legislators are painting consumers with a broad brush and attempting to create a financial product that will not work in the free market," Moore, a Democrat, said in a written statement.

Currently, lenders collect $15 on every $100, setting the initial cost of a $500 loan -- the maximum under Virginia law -- at $75. A 36 percent cap translates to about $1.40 per $100, not enough, the industry says, to keep cash stores in operation.

Though the state was opened to lenders in 2002, a backlash against the industry -- it is depicted as ensnaring the unsuspecting in debts that can take months or years to repay -- has left Virginia surrounded by jurisdictions that have banned lending or dramatically restricted it.

House Bill 12 is expected to emerge today from the Commerce and Labor Committee and could be on the House floor by Friday.

Supporters are predicting a hefty vote for the measure, perhaps weakening the resistance of the industry's top supporter in the Senate, Richard L. Saslaw, D-Fairfax, the majority leader and chairman of the Senate Commerce and Labor Committee.
source:http://www.inrich.com/cva/ric/news.apx.-content-articles-RTD-2008-02-05-0113.html