Payday lending law takes effect today

Some of the nation's most sweeping reforms on payday lenders will take effect in Virginia today, but some short-term, high-interest lenders are getting around the new law by offering different types of loans.

Legislators ended three years of debate over the industry last winter when they passed a law that limited borrowers to one payday loan at a time and extended the length of time they have to repay it, effectively limiting how many loans they can get each year.

Lawmakers put off the effective date until today to allow time to set up a database to track the loans.

In the meantime, the State Corporation Commission gave 11 payday lending companies permission to offer open-end credit products. Another seven applications are pending.

In Virginia, lenders offering open-end credit - similar to a credit card - are unregulated. They can set whatever interest and terms they wish as long as they don't charge anything for the first 25 days.

Until now, payday lenders were allowed to charge $15 for each $100 loaned, with payment due on the borrower's next payday. The short term of the loan pushes interest rates into the triple digits.

Advocates had called for a 36 percent interest rate cap, but legislators didn't go that far for fear of jeopardizing a source of credit for those who can't qualify for traditional loans.

Consumer advocates and some lawmakers say the lenders have been trying to circumvent the law, and say it shows that more should have been done.

Delegate G. Glenn Oder, R-Newport News, who sponsored the new law, said he will file legislation to prohibit payday lenders from operating under the open-end statute.

The lenders say they are just trying to remain competitive.

Advance America recently began offering an open line of credit up to $750, for which customers are billed once each month at about 400 percent annual interest.

QC Financial Services, based in Overland Park, Kan., also will offer an open-end credit product in Virginia, company spokesman Tom Linafelt said.

Some companies, like Advance America and Check 'n Go, also have started offering Internet payday loans. During negotiations, lobbyists for the industry argued that online loans were more dangerous for customers and should be the focus of legislators' ire.

Most of Virginia's neighbors - including North Carolina, West Virginia, Maryland and the District of Columbia - have joined 12 other states in capping the interest rate payday lenders can charge. Lenders have tried to introduce new products in several of those states, including Ohio, where voters last month upheld a 28 percent rate cap and limits on the numbers of loans borrowers can get.