From the state of Illinois to Kimarnock, Virginia, politicians are posturing to try to put an end to the payday loan industry. Opponents argue that the businesses are predatory, and that they create more economic problems than what they solve. Consumers, however, don’t always agree with their politicians.
Take, for example, the aforementioned town of Kimarnock. Back in March, the town council voted to keep zoning laws in place that block the payday loan industry from expanding within the borders of that town. One of the town council members, Frank Tomlinson, led the charge against the payday loan businesses. “They loan to people who have their backs against the wall, and then they quite frankly stick it to ‘em,” Tomlinson was quoted as saying.
In that instance, many residents of the town supported the move to keep payday lenders out of the town. Statewide anti-poverty advocates from the organization Virginians Against Payday Lending even showed up to the town meeting.
A payday lender, Advance America, had hoped to set up shop in the town. They filed suit against the town, citing the idea of equal protection under the law. The town eventually reversed its decision, unwilling to face costly litigation to defend its zoning decisions in court.
It’s important to understand what a payday loan is if you want to understand the outcry. A payday loan lets a customer borrow against a future paycheck. In exchange, you pay a fee when you pay off the loan. Calculated as an annual rate in the same way that banks and other kinds of lenders do, this can be several hundred percent.
Opponents argue that this is usury, and that it takes advantage of people when they need it the most. However, there are those that believe otherwise. One federal study even suggests that payday loans have a positive overall effect on the borrowers and the local economy where those types of loans are permitted.
Payday loan businesses have been expanding quickly. In Virginia, for example, the Payday Loan Act of 2002 opened the way for the payday loan industry to do business. Today, the payday lending industry in Virginia is a $1.5 billion per year industry, featuring as many as 800 payday lending locations. These locations lend money to borrowers for emergency situations.
Many organizations, from the left-leaning AARP and AFL-CIO to right-leaning Family Foundation have come out against payday loan practices.
Still ,there is a strong and vocal group of people who are standing up for the rights of payday loan businesses, too. The fight isn’t over, and the industry may yet have life left in her to fight.