Two lawyers went head-to-head in a panel discussion at UVA Law School’s Caplin Pavilion Wednesday, November 1. One, Jay Speer, the executive director of the Virginia Poverty Law Center, said pay-day lending is predatory and should be outlawed; the other, Michele Satterlund, an attorney who represents payday lender CheckSmart, said her company is simply fulfilling a market need in a modern economy.
Payday loans are characterized by short lending periods (usually two weeks to a month) and high interest rates, which Virginia caps at 780 percent. Since the Payday Lending Act was passed in 2002, unregulated, high-interest small loans from national banks have been brought into the mainstream of Virginia’s financial culture. Because they’re short-term and limited to $500, payday loans are exempt from Virginia’s usury laws, which cap interest rates at 36 percent for all loans. The number of payday loans in the state has jumped from 600,000 to 3.3 million per year since the Payday Lending Act was passed. In Virginia, there are three payday loans shops to every Starbucks, according to the Virginia Partnership to Encourage Responsible Lending.
Payday lending, said Speer, “is specifically designed to trap the borrower into debt.” He added, “The statistics show that almost everyone gets loan after loan.”
But Satterlund argued that Virginia needs “a financial product like this.” “When I hear Jay talk, it’s as if he’s saying people who are in financial hardship are not smart…let’s control their money for them,” she said. Satterlund also argued that most people use payday loans “appropriately.”
Also on the panel was Virginia State Senator Creigh Deeds—one of the people who may eventually vote on whether to outlaw payday lending. Two bills are currently at the House committee level in the Virginia General Assembly: One would reverse the Payday Lending Act; the other would institute reforms to payday lending, such as creating a payday loan database that keeps track of borrowers’ loan history and preventing borrowers from having more than three outstanding loans.
Payday lending companies have been under increasing scrutiny for high interest rates and preying on low-income customers. Deeds says the House Commerce and Labor Committee will have the most immediate influence on the payday lending issue. Though Deeds said during the panel that payday loans have a clear market demand, he wrote in an e-mail that “stiffer regulation of the industry is necessary.”