Pay Day Loan Rates Should Not Be Capped in Virginia

Ben Glass

Attorney
(866) 735-1102 Ext 320

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The Virginia General Assembly has started its 2008 session and one are of controversy is whether so-called "Pay-
Day" loan rates should be capped.

House Bill 12 proposes limiting the annual rate of these loans to 36%. This is a bad idea.

A "pay-day" loan is a short term unsecured loan, usually of only a few hundred dollars, that generally carries a rather high rate of interest, especially when annualized.

The governement should NOT regulate these loan rates. Here are the reasons:

1. The pay day franchise owner takes a huge risk in loaning unsecured money. Those in favor of forcing loan rate caps are invited to start and operate their own pay day loan company

2. There is a huge market for this stuff. According to the Washington Post, Virginians took out more than 3.3 million of these loans (not dollars, but loans) in 2005.

3. No one is forced to borrow this money. Yes, the government should certainly regulate WHAT the creditor discloses to the customer but NOT what those terms should be.

This is a free market question. Let competition determine loan rates and terms.