Thousands of Virginians face financial shortfalls every day--they suddenly need to pay for a child to see a doctor or they need a car repaired in a timely manner.
Many choose payday loans to help overcome these situations. For instance, someone with an unexpected expense may take out a loan of $100 between paychecks, with a $15 fee due within 14 days. Customers are required to show proof of identification, a source of income and evidence of an active bank account. In addition, loan amounts are made with consideration for the customer's ability to repay, and precautions are taken to ensure that they are able to do so.
Over 430,000 Virginians used payday loans in 2007. The majority use the product responsibly. Consumers often see payday loans as a cash-flow tool that can help them avoid bouncing a check, missing a credit card payment or neglecting an outstanding bill.
Critics of payday lending, however, have proposed that the government intervene in personal financial decisions and take away this consumer loan option. This "reform"--as it has been dubbed by critics--would include an annual interest rate (APR) cap on payday loans; a limit of 36 percent has been proposed. Charging rates that low would likely make it impossible for payday lenders to stay in business, essentially banning the product in Virginia. Oregon recently passed such a cap and payday lending companies shut down.
Payday loans fill a gap in the credit market. Banks and other financial institutions seldom, if ever, offer similar short-term loans, particularly when individuals with poor credit are involved. A recent academic study by the Federal Reserve Bank of New York reported that people "bounced more checks, complained more about lenders and debt collectors, and have filed for Chapter 7 ('no asset') bankruptcy at a higher rate" after payday lending was banned in Georgia and North Carolina. The study found that consumers faced costly consequences of having fewer avenues for accessing credit.
Lawmakers in Virginia's General Assembly are about to debate whether this regulated product should be banned. For more information about payday loans and the effect of legislative action, visit www.vafinancialchoices.org.
Payday loans are a convenient option for people who find themselves in financial difficulty.
source:http://www.napsnet.com/articles/57410.html
