02/25/2007

By DENA POTTER  / Associated Press

Efforts to place modest reforms on the payday lending industry died Saturday when negotiations broke down in the General Assembly's final hours.

Sen. Richard Saslaw, D-Fairfax, said industry representatives, consumer advocates and Gov. Timothy M. Kaine couldn't agree on restrictions that would protect those who use the short-term, high interest loans without putting payday lenders out of business.

Saslaw's industry-backed bill would have placed limits on the number of loans individuals could have at one time and required lenders to give overextended borrowers more time to pay.

Legislators voted earlier in the week to send Kaine the bill, but reneged for fear that he would place on it annual interest rate caps. Instead, House and Senate "conferees" tried to work out differences before lawmakers adjourned on Saturday.

Whether an agreement was in sight depended upon whom you asked.

"If we had more time we could have reached an agreement," said Reggie Jones, a lobbyist for the industry. "I feel like we were so close."

Payday lending opponents claimed the industry was unwilling to accept "real reforms," such as an interest rate cap or a limit on the number of loans individuals could have each year.

"We want to protect people and they want to protect profits, and that seems to be the sticking point," said the Rev. C. Douglas Smith, a member of the Virginia Partnership to Encourage Responsible Lending, a coalition of 25 faith, business and civic groups that oppose the industry.

Both sides said they were disappointed that nothing was accomplished. The session started with more than a dozen bills to either reform the industry or repeal the 2002 law that allowed payday lenders to charge more than 36 percent interest.

Kaine had threatened to make "significant changes" to the bill if he got the chance. While he supported a 36 percent interest rate cap, he had said he didn't believe legislators would go along.

Kaine said Saturday the issue would be back.

"They can pull the bill this year, but you know, was it Joe Louis who said, 'You can run but you can't hide,'" Kaine told reporters.

Payday lenders charge $15 for every $100 loaned up to $500, which average out to an almost 390 percent interest rate if renewed every two weeks. The lender holds the customer's check until his or her next payday, when the borrower either pays off the loan or the lender cashes the check.

Opponents argue that the majority of borrowers take out loans from one lender to pay off another, digging themselves deeper into debt.

The lenders said a 36 percent cap would put them out of business, allowing them to charge only $1.38 for a $100, two-week loan.

Del. Jennifer McClellan, D-Richmond and an outspoken opponent of payday lenders, said talks already have begun about bills that could be introduced next year to rein in the industry.

"I'm disappointed we couldn't do it this year, but I think we now have the opportunity to do something meaningful," McClellan said.