From Reuters (7/13/09)
NEW YORK, July 13 (Reuters) – Two large U.S. states, Virginia and Pennsylvania, on Monday announced steps they said may keep consumers who are struggling in a tough economy from taking out unnecessarily high-cost loans from payday lenders.
Virginia said it will offer six-month loans of $100 to $500 to state employees facing financial difficulties, Gov. Timothy Kaine said. The loans have a 24.99 percent interest rate and no late fees or credit checks, and borrowers must take an online financial course and a brief financial literacy exam.
“This program will allow our state employees to receive small loans without having to go to predatory lenders,” the governor said. He encouraged companies to offer similar programs on their own.
Meanwhile, Pennsylvania banking chief Steve Kaplan said a state appellate court ruled on Friday that Internet payday lenders and other out-of-state companies must obtain licenses before they make consumer loans to Pennsylvania residents.
Kaplan said a state law capping rates and fees on non-mortgage loans of $25,000 or less had previously applied only to companies with offices or employees in the state.
Payday loans are typically made to tide over borrowers until they get their next paychecks.
Critics say the loans contribute to consumers’ financial problems because of high fees that can equate to annualized interest rates of several hundred percent.
According to a July 9 report by the Center for Responsible Lending, about three-fourths of the industry’s $27 billion of annual loan volume comes from “churned” loans taken out by borrowers within a single two-week pay period, ensuring that their high borrowing costs persist.
Thirty-five states allow payday lending, while the other 15 states and the District of Columbia cap borrowing costs, the report shows.
(Reporting by Jonathan Stempel; Editing by Richard Chang)