For decades now the gap between the rich
and poor in America has been growing. Automation and the outsourcing of service and manufacturing jobs
to Asia and developing countries have contributed to this growing problem. This gap between the rich and
poor has resulted in another gap, the deficit between those individuals with access to reputable financial services and those
without. Payday lending has become one of the grim alternatives to address the needs of those without access
to the world’s most sophisticated financial market.
Traditionally, the high risk associated with lower-income borrowers has resulted in a much more costly product, if one is
available at all, for the bottom sector of consumers. However, the notion that “the poor pay more” has breached
the boundary of fairness and headed directly into the realm of exploitation. Payday lending is one of the
newest variations of price gouging that is directed specifically at our vulnerable neighbors.
Payday lenders, who can legally charge up to 782% APR in Virginia, entrap borrowers with
few viable financial alternatives and limited financial education in cycles of inescapable debt. This product,
or “service” as industry proponents would have the public and policy makers believe, is dramatically different
from loans offered to the more affluent consumers. Payday lenders target the desperate, and it is in their desperation that
payday borrowers become victimized by an industry consumed by its own greed. Many Virginians have found
these business practices, especially the triple-digit interest rates and the debt trap, to be nothing less than egregious.
And many, in turn, have begun to respond.
and the state of Virginia, coalitions are being formed to address the problem of predatory payday loans. While
there have been some successes nationally and in Virginia to address the multitude of issues surrounding payday loans and
access to financial services, progress has been limited as a result of the power of the payday loan industry.
This business force has grown exponentially over the past decade, and now imparts influence from the very smallest
locality all the way up to some of the most powerful federal representatives. The payday loan industry,
rich off the backs of those that can least afford it, spends millions in lobbying efforts and sophisticated public relations
campaigns. They are a formidable opponent, victory over which will require a targeted, specific, and sustained
effort and strategy.
of this paper is to integrate the efforts of those organizations in Virginia working on the problems outlined above and to
propose an action plan for addressing the problem. The approach outlined will be both ‘bottom up’
and ‘top down’. In regard to legislation, the focus will be on elected officials that have
the power to change and enforce the law and cap payday loans at 36% APR. Within regard to alternative financial
services, the focus will be on building a local model that would be replicable and exportable to other regions.
The key to success of this plan will be our ability to obtain the support and leadership of those individuals and institutions
already committed to this effort and to gain the support of those financial institutions that will provide the fair alternative
to payday lending and who will profit in the process. This plan is composed of three parts to be pursued concurrently:
repeal the law allowing payday lending or, at a minimum, amend the law to address the most predatory practices to include
a 36% APR interest rate cap and removal of the debt trap.
2) To provide viable financial alternatives to payday lending for lower-income Virginians who find
themselves in need of short-term small denomination loans.
3) To achieve financial literacy
through education for those most likely to be payday borrowers.
The first priority will be a concerted effort to cap the interest rate at 36% APR for all Virginians as the US Congress
has done nationally to protect our military personnel.
In the pursuit of these three goals, a board
of directors will be established to create both short-term and long-term strategies and manage the implementation process.
This group will be drawn from concerned individuals, financial institutions, faith based organizations, consumer advocacy
groups, the business community, and other partner organizations already working on the issue. Under this
board of directors, three committees will tackle each goal separately, developing a plan of action relative to their assignment.
Repeal of Predatory Lending
The payday lending industry is powerful,
both nationally and in Virginia. That power is made up of financial resources, access, and influence to
the state and federal legislatures. The committee on repeal of the predatory loan laws will be responsible
Drafting model legislation to be submitted by key legislators for
the repeal of the 2002 Payday Loan Act or implementation of a 36% APR rate cap, along with the elimination of the debt trap
and other legislation, as appropriate
Identifying state committees and legislators most critical to repeal
or amendment of the statute
Employing a lobbyist with experience and access to the key members
and committees in the state
Providing briefing materials and information on the tragic impact
of these laws on those entrapped by the predatory lenders
Gathering support of local organizations and Virginia citizens to
demand action by their representatives in the state legislature
Alternative Financial Services
The repeal of payday
lending laws will be a hard battle in view of the power of the payday lending lobby. Regardless of the
outcome of the legislative initiatives, there is an immediate need to address the substantive problem of those without access
to financial services, often referred to as the “unbanked” or “underbanked”. Financial
institutions are increasingly aware of the need to service this community of potential customers and are beginning to address
As C K Prahalad points out in his book “The
Fortune at the Bottom of the Pyramid”, multinational companies are discovering that the less advantaged are increasingly
viewed as a vast community of customers that can be serviced to the benefit of the business as well as the public.
Financial institutions can join this fight against payday lending as partners and beneficiaries as these borrowers
are transformed from victims to customers.
the World Bank and the International Monetary Fund have recognized that lending to the less affluent has the potential to
reduce poverty and encourage growth and development. The task of this committee is to leverage and accelerate
this nascent movement. The committee on alternative financial services will be responsible for:
Researching the extent to which financial organizations have begun
to address this problem, including identifying national organizations who already developed alternative products (e.g., FDIC’s
Money Smart program, Langley Federal Credit Union’s Quick Cash program & Prosper.com)
2) Reviewing CFSA’s Peer to Peer Training
Documenting the approach used by these organizations and the successes
Identifying those financial service organizations such as credit unions
and community banks with a special interest in serving this market and aggregating into an easy to access list
Ensuring that every local community has financial institutions ready
to serve this client base
Helping to market and advertise viable financial alternatives to a
wide audience, including churches, civic associations, and other groups with access to traditional payday borrowers
There is a significant deficit in the US
regarding the issue of financial literacy. The US government, state governments, and banks and credit unions
are beginning to address this issue, acknowledging the danger of an uneducated populous subject to financial exploitation
and ruin. They have begun developing programs to reach out to those in need of information about financial
services in their communities. Unfortunately, the organizations providing these services are too far and
few between. The financial literacy committee will be responsible for:
1) Identifying the financial institutions and other organizations that have successfully used programs
to disseminate information about financial services
Reviewing the materials currently used for providing counsel to those
Adopting one or more of these training regimens as the standard
Encouraging other financial institutions in local areas to provide
such training and working in partnership to provide resources to supplement their efforts
5) Providing an accepted curriculum and supplemental materials to the churches and civic organization
for the widest dissemination to those in need of these services.
Plans are not self-implemented. They require the action
and leadership of individuals and organizations that are committed to achieving short and long-term objectives immediately
after they are identified, under a pre-set and agreed upon timeline. The board of directors will work with
each of these committees to assist in the development and implementation of their plans.
Adopted: May 21, 2007