Kerr: They call themselves payday lenders, but they’re still ‘loan sharks”’

Back in the 1930s and 40s, my grandfather worked as a linotype operator at a printing plant that ran 24 hours a day.  Across the street there was a hamburger joint, a bar and a few other assorted small businesses that lived off the daily traffic of workers at the plant. 

But he also told me about other “unseen” enterprises. For instance, there was the boy who in exchange for a quarter took your lottery number. Back in those day’s lotteries were illegal and were often run by organized crime. There was also a bookie who took your bets on ball games and horse races.

Then there was another fellow you could talk to if you needed cash. You’d tell him your story, sick child, gambling debt, behind in the rent, whatever. He’d ask how much, and in return for an incredibly high rate of interest and a quick repayment plan, he’d lend you some cash. He was called a “loan shark.” His methods were crude by modern standards, and if you missed a payment then he and some of his friends might rough you up in an alley.

Now, flash forward 70 years and guess what, loan sharking, though these days we call it “payday” lending, is legal in Virginia. It has been ever since 2002. It’s different from loan sharking, but only a little bit. They can’t come after you with their thugs, that’s still against the law, and while the interest rates were capped several years ago, they can still hit you with numerous fees, that if translated into an interest rate, are mind boggling.  Also, unlike their depression-era ancestors, they don’t have to operate out of a bar or duck into the men’s room when a police officer drops by.

In Northern Virginia there are dozens of payday and car title lenders. Near where I live, the office space they occupy includes a former filling station and an old 7-Eleven. Nothing but the best for these folks.

It didn’t take long for this enterprise to take off in the Commonwealth. And little seemed to hold them back. During their first few years of operations they made the loan sharks of old look conservative. No, there weren’t any bully boys with baseball bats, but the rates and fees were astronomical. The loan sharks of my grandfather’s era would probably have blushed at offering such outrageous charges. But the system was the same. They ensnared low-income people in a net of small loans.

In 2008, things got a little better. But only a little. The legislature, responding to public pressure from low-income advocacy groups, capped the interest rate and the number of times a borrower could go to a particular lender in one year. This was good, but they left plenty of loopholes, and payday lending and car title lending, continued.

Payday lending has been with us for almost two decades and our area continues to be ripe territory for their practices. Letting it in in the first place was bad, reforming the system did a little good, but the best answer would be getting rid of it entirely. It’s a blight on our community.

Payday lending is a simple enough concept. It’s a super short-term loan, usually in an amount as small as $100 or up to $500. Or more perhaps. The process takes several forms. One involves, say, going to a lender and giving them a check that they can cash when your paycheck comes in. It will include the 15% interest rate, but will also include one, two or even three different fees. This is the way they got around the interest rate cap.

These folks are predatory lenders. Just watch their ads on TV. “Need cash in a hurry?” Sure, why not, and often all that paperwork, including the bit where you might sign away the title to your car, is sometimes not fully explained. Most of us know better than to get mixed up with these types of lenders. But in the midst of the coronavirus crisis a lot of people are desperate.

The payday lenders have a strong lobby in Richmond. They always seem to get the ear of the legislators first.  But it’s also the duty of government, and the General Assembly, to protect the weakest and most vulnerable of its citizens. That’s why we had laws against these kinds of lending activities in the first place and it’s the very reason why we should bring them back.  I know I am shouting at the wind, but just to make it clear, it’s time to put the payday lenders and all their associated enterprises out of business.  I do hope the new Democratic majority in Richmond is listening. 

David Kerr is an adjunct professor of political science at VCU and has worked on Capitol Hill and for various federal agencies for many years.