Despite her near-perfect posture, Sally looks slouched and rumpled against the booth at Denny's on West Broad Street. Her coffee is cold. Her winter jacket its dark blue, faux-fur lining matted with age looks inadequate.
A dignified woman of nearly 60 years, she speaks with a deliberate intelligence that betrays her four years of college and a past far less troubled than her current homeless, jobless state.
Her sinking fortunes and crushing debt began a few years ago, she says, when she walked through the door of a Richmond-area payday loan store, the kind that offers a cash advance on your paycheck for a fee.
"I have not been able to get out from under the debt. And without taking care of that, I can't get a checking account, and a lot of people won't hire you without a checking account it's kind of one big cycle," says Sally, who asks that her last name not be used because of the indignity of her situation.
Sally calculates her debt to various Richmond-area payday loan outlets at only about $1,700 plus fees and likely penalties, but that amount is overwhelming to her. Already living paycheck to paycheck, her payday loan debts triggered a vicious cycle that wound up costing Sally her job, her home and even her health.
She'd previously done secretarial work. After she lost that job, she'd even worked as a manual laborer to pay the bills. But she was in her 50s and says she couldn't maintain the pace. And finally, health took her out of the job market, out of her home and into a situation that seems as bleak as the vinyl-upholstered restaurant booth she occupies.
A pay-as-you-go cell phone is as close as Sally comes these days to a permanent address. She insists callers ring back after 9 p.m. when rates are cheaper.
It all started with a broken-down car.
"Initially, I got into the payday loan thing because I had a grandchild with me and I needed the money for a car repair," she says. The repair "didn't take," and she found herself going back for another loan, then another first to take another shot at fixing the car, then to have money to pay the service fees on her various short-term loans.
Eventually, a creditor sent the repair-resistant car to the scrap yard. She had no car, no job.
At the time her financial spiral hit bottom, Sally says, she was making only about $600 a month and was paying more than $200 just to service the interest on her various loans: "I couldn't afford to pay that and to pay my regular bills and to eat."
Before losing her job and her former life to weekly debt obligations in excess of her paycheck, she tried to make good on her debts. She estimates she paid one payday loan creditor "at least $1,200 in interest."
"I've gone to three different lawyers," Sally says. "They all said the same thing: There's no need to file for bankruptcy because there's nothing to file on. I don't have a house, a car, a job."
Sally's reality is Delegate Harvey B. Morgan's worst nightmare.
"We certainly created a monster," says Morgan (R-Gloucester). He sponsored 2002 legislation that made it easier for payday loan companies to open here, although it was intended to provide regulatory structure for those companies operating here.
In essence, payday loans are short-term loans typically for two weeks or less that are guaranteed by the lender with a signed check from the borrower, in the amount of the loan plus an administrative fee. You turn over your check, you get the cash.
Generally, both the borrower and the lender know that the borrower's check is not backed by any money in the bank account it's written against. Instead, it's written against future funds to be deposited later, when the borrower is paid by an employer. Consumers typically use the loans to pay unexpected bills due before their next payday.
But a growing chorus of critics say that payday lenders prey on the poor and disenfranchised, often charging enormous late fees and lending money to those who can least afford to pay it back.
Morgan serves as chairman of a legislative committee that will, during this session, study proposals to abolish or more stiffly regulate the state's payday loan operators. So far, five bills have been introduced dealing with payday loans.
Morgan's remorse at opening the door for payday loan companies in 2002 is palpable as he recounts how he was first approached by an industry lobbyist in 1999 and asked to patron pro-payday loan legislation.
"I didn't like it at all," Morgan says, "but [the lobbyist's] point was that the company he was doing business for wanted to do business in Virginia, but didn't want to do it without regulation."
Although payday lending stores operate in all 50 states and Washington, D.C., only 37 states regulate payday lending.
It takes a lot of short-term $500 loans like Sally's to arrive at the $45 billion in payday loans written nationally in 2002. The Community Financial Services Association of America estimates that 180 million payday loans were made in the United States seven years ago, the last year for which the association has nationwide figures.
In the early 1990s there were fewer than 500 payday advance stores nationally. By 2002, there were about 12,000.
So the lobbyist's argument for regulation sounded noble enough to Morgan, who says he smelled a whiff of insincerity in the proposal. But other payday loan companies were already beginning to infiltrate the state, operating legally if not ethically by leasing operating charters from out-of-state banks. Many of them were charging what amounted to annual percentage rates in the high hundreds.
"We'd had a pretty good predatory lending law that was challenged in federal court by [an out-of-state] bank and we lost," Morgan says. Fearing the worst, "I figured it would be better to have [payday loans] regulated in Virginia."
But the bill he settled on and passed provided little personal satisfaction.
"The proposal was to limit fees to $15 per $100 of the loan you're noticing I'm not saying 15 percent and to not allow any rollover loans," Morgan says. That is, the law sought to keep payday loans from extending beyond their term, but failed to regulate fees in any meaningful way.
Though payday loans are intended only as short-term loans of about two weeks, often it doesn't work out that way. Many customers borrow to pay for emergency or unexpected bills, and their monthly budget simply doesn't have the wiggle room to allow them to both pay back the loan and deal with the rest of their regular bills.
As a result, customers often extend their loans by re-borrowing week to week. They may not be technically rolling their original loan over, but it creates a snowball effect. If someone re-borrows on a $300 payday loan for the typical 26 paydays in a year, the effective annual percentage rate becomes 391 percent or $1,173.
Morgan says cases like Sally's are proof that the legislature's regulation simply provided payday loan companies with legitimacy to operate with impunity. The law's clause disallowing rollovers was easily sidestepped, and in fact, the FDIC has determined that mechanisms used to extend payday loans are de facto rollovers.
In Virginia today there are 83 payday loan companies operating a total of 756 payday loan outlets.
"Them coming and saying 'Please regulate me' was like Brer Rabbit saying 'Please don't throw me in the briar patch,'" Morgan says of the payday lenders. "It legitimized an otherwise very unsavory practice."
Recently federal lawmakers partially addressed the issue by limiting loans to servicemen and women to an annual percentage rate of 36 percent.
Morgan wants to see more done here, and his opinion is widely shared by members of both parties. A bill proposed by Delegate John A. Cosgrove (R-Chesapeake) would set the annual percentage rate at 36 percent. Another from Delegate Jennifer McClellan (D-Henrico) would repeal Morgan's 2002 act.
Meanwhile, a broad group of unlikely bedfellows are lobbying for stricter regulation. Local governments, religious groups, consumer groups even the Family Foundation and the NAACP Virginia Chapter lined up shoulder-to-shoulder at a General Assembly committee meeting in December and asked legislators to shut down payday loan companies for good.
The harsh rhetoric and broad disdain among payday loan detractors simply plays to a frustrating lack of education among the general public about the benefits of payday loans, according to industry officials.
"A lot of them will say we are targeting the poor," says Lisa Ferguson, communications director with Columbus, Ohio-based CheckSmart, which operates 18 stores in Virginia.
"Our customers are hardworking customers and they have full-time jobs," Ferguson says. "We wouldn't lend to somebody who couldn't pay us back."
Many have other means of credit and own houses, she says, but choose payday loans for their convenience. Statistics support her claims. The number of payday loans made in Virginia is growing, while complaints about improprieties are not.
Industry supporters cite State Corporation Commission-maintained statistics to back their assertions that payday loans fill a market niche. In 2004, more than 387,500 payday loans were written in Virginia. In 2005, the most recent year statistics are available, the number of loans soared to 445,891, an increase of more than 15 percent.
In 2005, only about 20 percent of borrowers received more than 13 loans during a 12-month span.
Ferguson says situations like Sally's are rare in the industry far less common than similar tales of debt-riddled woe among users of credit cards or even home mortgage loans.
"[Critics] tend to say that the APR is so incredibly high on this. What they're not keeping in mind is that this is a two-week loan. We're not giving this loan for a year," Ferguson says. "The only way to reach that 395 APR is to take that loan out and continue to renew it for a year and that's not possible in the state of Virginia."
Even using the term "annual percentage rate" is unfair, Ferguson contends. "We don't give credit, that's a very touchy word," she says, pointing to other businesses that charge fees far in excess of payday loans. They aren't accused of opportunism, she says.
"For example, if you take a $100 bounced check, the banks are saying with a $54.04 [average] nonsufficient fund and merchant fee, that APR is 1,409 percent," she says, computing similar high rates for overdue utility bills. "If you're going to APR our stuff, this is how you're going to APR the others."
Despite industry aversion to using the term, the SCC's own tallying efforts refer to annual percentage rates in tracking payday loans. The average annual percentage rate is 386 percent, according to the SCC, meaning many one-time loans are carried over week to week by the same customer.
Jabo Covert is a vice president and spokesman for Cleveland, Tenn.-based Check Into Cash. He says opponents overlook one thing: People want his service.
"If you check with the department that regulates us there in Virginia, we haven't had but a handful of complaints in years," Covert says. "Our customers are satisfied with our products and with the price that they paid for that product."
The SCC documented only 56 complaints against payday loan companies in 2005. Through August of last year, when statistics were last tallied, there were 33. Surveys conducted by CheckSmart show 90 percent or higher customer approval of the product.
Covert discounts lobbyists who partner against payday loans, accusing them of taking funds from a nationally active anti-payday-loan organization that's allied with credit unions: "These groups are against all sorts of things it's not just us.
"And it's funny, the NAACP supports us in some places," Covert adds. "Some of the same groups that are fighting us in Virginia are supporting us in [other states]."
In fact, the payday loan lobby says it's not averse to additional regulation by the state, so long as the General Assembly doesn't seek to put them out of business.
Like any business, "there are bad guys and there are good guys," says Danielle Overmeyer, another CheckSmart official. And good lending companies like hers are the reason that Virginia had the foresight to put in place the regulatory framework it did in 2002, she says: "We work on getting legislation in place so we can do business, but to keep the customers as safe as we can."
She notes that her company also does outreach in communities where it operates, running seminars on financial responsibility and practical budgeting for families. "Never once have I been ashamed of where I work," she says.
Rebecca Flippo doesn't share Overmeyer's feelings.
Flippo worked at a now-defunct payday loan store that was one of a handful operating in the predominantly working-class community surrounding Nine Mile Road in Henrico County.
"They target the lower middle class and the poor and the retired," she says. "Anybody that could have a $500 loan, they probably bring home or make about $700 [a pay period], and they don't realize that, come next week, they have other bills they have to pay," she says.
After figuring fees into their payback costs, "you're loaning them almost 95 percent of their [paycheck]," Flippo says. "And there's no way they can repay that in the next pay cycle. They just get caught in the cycle of having to re-borrow."
Perhaps most disturbing to Flippo were the lengths and means to which companies went to collect on debt.
"When we first closed a loan, we'd tell people there's a consequence with passing a bad check," she says, emphasizing that the implication was always that bad check writing was a criminal offense. In fact, the payday-loan law allows only civil penalties for any nonpayment issues, even those in which the bank has returned checks for insufficient funds.
"I had people come in very upset after talking with our collections department, where they would threaten them with criminal charges," Flippo says, noting that other tactics were just as aggressive. "If you were a day late, the next day we were on your doorstep. We were at your job. Your house is one thing, but to show up at your workplace, I feel like that could jeopardize your job."
In some cases, employees from her store would be sent to confront customers at other area businesses where they happened to be shopping. She said her store had partnerships with some surrounding businesses that allowed them to bully debtors.
"That's just humiliating," says Flippo, who stayed with the job for about six months. "I'd had enough I was disgusted. My conscience was catching up with me."
The SCC numbers hint at the dark side Flippo describes. Among the 445,891 loans written in 2005, about one-fifth of the checks written by customers to guarantee those loans came back unpaid by the bank. Only about half of those checks 78,003 of them eventually were paid.
Covert, the vice president of Check Into Cash, insists that experiences like Flippo's and businesses like the one Flippo worked for are the exception rather than the norm. They're isolated tales of woe furthered by anti-payday-loan lobbyists, he says. "I think the legislators can see through a lot of this and see it for what it is."
Covert insists that tweaking existing laws is all that's needed to address most concerns about payday loans.
He says his company, for example, offers payment plans to customers who have fallen into "the cycle of debt," a provision that's part of Washington state's payday lending laws.
Other increased regulatory measures that have industry backing include many of those proposed by Delegate G. Glenn Oder's (R-Newport News). His bill would establish a statewide database for payday lenders to ensure that borrowers don't have more than three outstanding payday loans. The bill also would prohibit lending to a customer who has closed another payday loan account within 48 hours. Collection proceedings against customers would be allowed only 60 days after the customer has defaulted on the loan.
If the reform has support from payday loan lobbyists, it likely won't be enough, according to Helen O'Beirne, a paid lobbyist for the Virginia Partnership to Encourage Responsible Lending, the state coalition fighting to end payday loans here.
"It's all over the Bible that this is absolutely prohibited," O'Beirne says, referring to the story of Jesus physically throwing moneylenders out of a Jerusalem temple. She advocates the same 36 percent cap adopted by the U.S. Congress for payday loans to service personnel.
Such a limit would be devastating to business, says Ferguson, with CheckSmart. "That's like less than 10 cents a day" in service fees per loan, she says, estimating that the average two-week loan would then net her company a whopping profit of $1.40.
"You can't pay employees on 36 percent," she says. "We couldn't even keep the lights on each day for that."
Opposition to payday loan companies began almost as soon as Morgan's bill became law. In some cases, before.
"Loaning money is very profitable business," Henrico County Manager Virgil Hazelett says. "But [payday loan stores] prey on a portion of our citizenry and it's wrong. It just shouldn't be done."
The Henrico Board of Supervisors jumped on the issue over concerns that the stores might degrade neighborhoods where they're located. And Delegate John O'Bannon (R-Henrico), husband of Tuckahoe district supervisor Patricia O'Bannon, was the first to sponsor legislation seeking reversal of the 2002 Payday Loan Act.
But at least one company moved into the county prior to state regulation, and officials unsuccessfully sought ways to exclude the businesses through zoning. A number of payday advance stores have located there since 2002.
And Hazelett could offer no proof statistical or anecdotal that the businesses adversely affected neighborhoods where they locate. "On the one hand, you could say it attracts business," he says.
Still, Hazelett says the county will continue its support of legislation to restrict how payday loan stores operate. "This is not the way the fair market system works to say well, I can do whatever I want," Hazelett says.
Contrary to the payday loan lobby's assertions that its customers understand the product they're using, Hazelett insists many borrowers simply don't have other options. "They're not looking at their financial exposure, just at their need," he says, criticizing legislators who have not acted sooner on Delegate O'Bannon's proposals.
Virginia NAACP Executive Director King Salim Khalfani sees another problem with payday loans, a racial one. "We found that our constituents are targeted heavily," Khalfani says. "We've been beset by all kinds of predatory lending efforts. Legislators are trying to justify why this is a good thing that's just incredulous."
Studies of the industry have shown both positive and negative effects on both personal finances and communities, depending on who commissioned the study.
But Richard Coughlan, associate dean of the Robins School of Business at the University of Richmond, leans toward the negative view of the industry.
"I think one of the key issues here is that the most likely customers are often unable to understand how taking money with such high interest rates is going to impact them both long term and short term," he says. He stresses that he's not calling those customers stupid: "These are sometimes fairly complex transactions, especially when it comes to the issue of defaults or late payments."
At Check City, a payday lending store on West Broad Street in Henrico, Tweh Moses cashes a paycheck and with no uncertainty says he's never taken out a payday loan with a misunderstanding of the deal. "Nah, I know how that is," he says, walking away and waving a dismissive hand toward the store. "That's a rip-off."
He shows a receipt showing a nearly $35 fee to cash a $745 check. "I don't like to use them for that either," he says. "But I don't have a [bank] account."
As for the effect on communities, payday loan companies can affect traditional local banks by competing with them, Coughlan says. "While those banks service customers in ways that are more transparent that means that each one of these transactions that might otherwise go to a traditional bank is no longer taking place."
And when customers start to get in trouble with loans to payday lenders, that can breed mistrust for all banking institutions, he says.
Is there a good side to payday lenders?
Coughlan is silent for a long time a pregnant and uncomfortably long pause before he finally calls them a useful last resort. Even then, he says, it's a bad one.
Sally wants to get her life out of hock from her various payday loan debtors. She has very little other than her blue coat, a purse and an overstuffed backpack full of belongings. In the wake of her homelessness, Sally's grandchild has gone back to living with her daughter. Sally wants her back.
"The two of them need their space from each other," she says.
Blame is not a word that comes easily to Sally. She has to be pressed to assign blame, and takes far more credit for her fall than she gives to others.
She cites a devastating event in her personal life as the straw that broke the camel's back. But once broken, she said, that back simply couldn't carry the weight of an ever-compounding debt load owed to payday and car title lenders.
She would like to return to what she's trained to do work as a secretary in an office.
Sally says she's getting her affairs in order. She's looking for a break, but not from her creditors. Them, she wants to pay in full for the sake of her pride. "I intend to take care of all of these things," Sally says. "But I feel like I've been taken advantage of by them." S