Jay Speer has campaigned for the Virginia Legislature since his maternity leave: 22 years.
And for nearly all, while he and his wife raised two children, both of whom are now out of college, Speer battles the high-cost instant loan industry, arguing that payday and auto title lenders mostly prey on the poor with debt they struggle to cope with be able to pay off – if at all.
For Speer, executive director of the Virginia Poverty Law Center, the industry is a much smaller target now, having been reined in by rules Democrats enforced in 2020, when her party commanded every corner of state government. Even long-time lender-friendly Republicans supported the reforms.
Speer’s battle with the lenders has de-escalated, but it’s far from over. A little-noticed mid-May settlement of a federal lawsuit filed over three years ago by Speer’s organization and two law firms, Fairfax’s Kelly Guzzo and Newport News’ Consumer Litigation Associates, says so much.
As part of the settlement, 550,000 borrowers here and elsewhere will avoid paying $489 million in illicit payday loans originated over the Internet, on which they were charged 600% interest. Most borrowers share $450 million in cash reimbursements. Another $39 million is earmarked for those who paid unlawful amounts to lenders.
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Despite its choppy record, Virginia was opened up to payday lenders during the 2002-06 governorship of a pro-business Democrat, Mark Warner, who is now a U.S. Senator — they’re so-called because they provide a cash advance against a borrower’s wages since on the industry cooled.
Warner signed legislation sent to him by a Republican-controlled General Assembly, despite top advisers urging him to reject it. One threatened to resign in protest. Warner’s successor, Democrat Tim Kaine, not a fan of the lenders, tried unsuccessfully to negotiate reforms acceptable to the industry and its opponents.
A 2009 attempt to limit the frequency of borrowing — spearheaded by several senior House Republicans and a law firm with close ties to the GOP — drove out some lenders. In order to stay open in Virginia, many changed their business model and operated under a provision in state law that allowed them to charge higher interest rates.
In the years that followed, there would be other—unsuccessful—efforts to take down the lenders. The industry’s presence in Virginia expanded in 2011 when the state sanctioned auto title lending where a borrower risks losing their motor vehicle for non-payment of a loan. At that time, Republicans held the legislature and the governorship.
Finally, in 2020, with Democrats in full control of the statehouse for the first time in nearly 30 years, Virginia passed sweeping protections under the Fairness in Lending Act. The measure drew bipartisan support, which lobbyists on both sides attribute to the fatigue of the legislation over the years of struggle.
At times the debate was theatrical, overshadowing larger, enduring issues: That traditional financial institutions—banks and credit unions—showed little interest in small loans at the time, viewing them as risky and unprofitable. Also, since their high-priced products were similar, competition among payday lenders for a seemingly captive audience was limited.
Lenders disrupted public hearings with box office workers who had been bussed into Richmond, many from Hampton Roads, where businesses were plentiful. Bashing lenders as loan sharks, an industry foe — a moving company executive who was trying to pay off an employee’s five-figure debt — would occasionally show up in, you guessed it, a shark costume.
Though it went into effect in 2021, the law capped interest and fees on payday and auto title loans, and capped the interest rate on consumer purchases paid over time at 36%. The law also created safeguards against online payday lenders based in other states or, like those in May’s settlement, operated by sovereign Native American tribes insulated by many laws.
The Pew Charitable Trusts reports that since 2010, Virginia — where lenders have gotten their way through well-placed lobbyists and has donated millions of dollars to lawmakers since Speer two decades ago — has been one of four states to have enacted comprehensive protections for payday borrowers at the same time Ensuring access to credit. The others are Colorado, Ohio and Hawaii.
“In these states, lenders are profitably offering small loans that are repaid in affordable installments and cost four times less than typical one-time payment payday loans that borrowers must repay in full on their next payday,” Pew said in an April study of the 32 states enable payday loans.
Among Virginia’s neighbors, Washington, DC, Maryland, North Carolina and West Virginia ban payday loans, according to the Consumer Federation of America, a consumer rights research and advocacy group. The loans are legal in Kentucky.
The impact of the new Virginia law on lenders is still unclear, though Pew says it would likely mean fewer payday deals. The State Corporation Commission’s Bureau of Financial Institutions is expected to produce an initial snapshot for the Legislature this month.
One consequence of the reform: possible competition from banks for small borrowers. Personal finance website NerdWallet says low-dollar, low-interest loans are likely to be offered by national firms like Bank of America, Wells Fargo and Truist. Could this be a magnet for cash-strapped, inflation-averse customers?
It’s all part of a larger overhaul of a facet of consumer finance that has long been portrayed in Virginia as big business preying on the little man. Heck, they’re not even called payday loans anymore. According to the law, these are short-term loans.
Contact Jeff E. Schapiro at (804) 649-6814 or [email protected] Follow him on Facebook and Twitter @RTDShapiro.