Payday loan companies have a history of prying on the poor to rake enormous profits setting up their customers to fall into severe debt. So many Virginians had fallen victim to the predatory practices used by the payday loan industry that there have been several attempts to reform the industry, though there is still some progress that needs to be made. Part of those reforms included a provision that required a waiting period of at least one day after a customer pays off a loan before they can receive another loan from the same payday lender. Those provisions have helped in some circumstances, but the payday lenders are still doing whatever they can to bend the rules.
This can be seen through a Virginia Supreme Court ruling issued last week in Ruby v Cashnet INC that says when a payday lender “makes a loan to a borrower immediately after the borrower repays in full a previous loan,” it’s a violation of the 2002 Virginia Payday Loan Act. According to Virginia Partnership to Encourage Responsible lending (VaPERL), that means Virginia payday lenders made an estimated 9.2 million illegal loans between 2002 and 2009. To help realize the extent of what’s at stake, it’s important to note that this isn’t 9.2 million dollars in loans, but 9.2 million loans.
VaPERL suggests that the Supreme Court decision is also important because it exposes yet another example how predatory lenders mislead borrowers and the public. For example, payday lenders and other predatory lenders market their loans as “a short-term loan to meet a financial emergency” but the high court had a better description of these loans: “…a vicious cycle of debt.”
What this all means is that legislators have tried to simply reform some of the regulations on the payday lenders and that’s brought some small success, but the high court’s decision illustrates how the General Assembly should revisit the issue. The 9.2 million loans that are deemed to be illegal are how this ruling shows that predatory lenders cannot be expected to follow the law when “reform” measures are passed. Dana Wiggins from VaPERL therefore pointed out what he believes to be how the GA should address the issue when he said “the only way to effectively regulate predatory lending is to return to interest rate caps that worked well before the General Assembly started creating all these exceptions for payday lenders and others.