Schapiro: Started in Va. with a whimper, ended with a bang – Richmond Times-Dispatch

And for nearly all of them, while he and his wife raised two children, both of whom are now out of college, Speer has been battling the high-cost instant-loan industry, arguing that payday and car-title lenders exploit mostly the poor with debts that they struggle to pay off — if at all.

For Speer, executive director of the Virginia Poverty Law Center, the industry is a now a much smaller target, having been reined in by rules Democrats pushed in 2020, when their party commanded every corner of state government. Even Republicans long friendly to lenders supported the reforms.

Speer’s fight with the lenders may have de-escalated but by no means is it over. A little-noticed settlement in mid-May of a federal lawsuit filed over three years ago by Speer’s organization and two law firms, Kelly Guzzo of Fairfax and Consumer Litigation Associates of Newport News, says as much.

Under the settlement, 550,000 borrowers here and in other states won’t have to pay $489 million in illegal payday loans made via the internet and for which they were charged 600% interest. Most borrowers will share $450 million in cash refunds. An additional $39 million is for those who paid unlawful amounts to lenders.

Despite their checkered record, Virginia was opened to payday lenders — they’re called that because they provide a cash advance against a borrower’s wages — during the 2002-06 governorship of a pro-business-Democrat, Mark Warner, now a U.S. senator who has since cooled to the industry.

Warner signed legislation sent him by a Republican-controlled General Assembly even as top aides pressed him to reject it. One threatened to resign in protest. Warner’s successor, fellow Democrat Tim Kaine, no fan of the lenders, tried and failed to broker reforms acceptable to the industry and its opponents.

An attempt in 2009 to limit the frequency of loans — it was led by several senior House Republicans and a white-shoe law firm with close ties to the GOP — drove off some lenders. To stay open in Virginia, many retooled their business model, operating under a provision in state law that allowed them to charge higher interest rates.

In succeeding years, there would be other — unsuccessful — efforts to bring lenders to heel. The industry’s footprint in Virginia expanded in 2011, when the state sanctioned car-title lending under which a borrower risks losing his or her motor vehicle for non-payment of a loan. At the time, Republicans held the legislature and the governor’s office.

Finally, in 2020, with Democrats in complete control of the statehouse for the first time in nearly 30 years, Virginia adopted sweeping protections under the Fairness in Lending Act. The measure generated bipartisan support that lobbyists on both sides attribute to legislative fatigue over years of fighting.

At times, the debate was theatrical, overshadowing larger, lingering issues: That traditional financial institutions — banks and credit unions — then showed little interest in small loans, viewing them as risky and unprofitable. Also, competition among payday lenders for a seemingly captive audience was limited because their high-cost products were similar.

Lenders would jam public hearings with workers from cash parlors who had been bused to Richmond, many from Hampton Roads, where stores were numerous. Berating lenders as loan sharks, a foe of the industry — a moving company executive who had tried to pay an employee’s five-figure debt — occasionally showed up, you guessed it, in a shark costume.

Though it took effect in 2021, the act limited interest and fees on payday and car-title loans and locked in at 36% the interest rate on consumer purchases paid over time. The law also created safeguards against online payday lenders based in other states or, as with those in the May settlement, operated by sovereign Native American tribes insulated from many laws.

The Pew Charitable Trusts reports that Virginia — where lenders worked their will through well-placed lobbyists and, since Speer arrived two decades ago, with millions of dollars in donations to legislators — is one of four states since 2010 to enact broad protections for payday borrowers while ensuring access to credit. The others are Colorado, Ohio and Hawaii.

“In these states, lenders profitably offer small loans that are repaid in affordable installments and cost four times less than typical single-payment payday loans that borrowers must repay in full on their next payday,” Pew said in an April study of the 32 states that allow payday lending.

Among Virginia’s neighbors, Washington D.C., Maryland, North Carolina and West Virginia prohibit payday loans, according to the Consumer Federation of America, a research and advocacy group for consumer rights. The loans are legal in Kentucky.

The impact of the new Virginia law on lenders is still unclear, though Pew says that it would likely mean fewer payday stores. The State Corporation Commission’s Bureau of Financial Institutions is expected to produce an initial snapshot for the legislature this month.

One consequence of reform: possible competition among banks for small borrowers. The personal finance website NerdWallet says that low-interest, low-dollar loans are expected to be offered by such national firms as Bank of America, Wells Fargo and Truist. Could this be a magnet for cash-short, inflation-jittery customers?

It’s all part of a larger makeover of a facet of consumer finance that, in Virginia, was long depicted as Big Business exploiting the Little Man. Heck, they’re not even called payday loans anymore. By law, they’re short-term loans.