As you walk down Broad Street between Virginia Commonwealth University and the Short Pump suburb, you’ll see a series of businesses with names like Cash Advance, Cash-2-U, and Fast Payday Loans. They’ll lend you money until your next paycheck – at interest rates critics call outrageous.
Zip code 23230 has one of the highest concentrations of payday loan stores in Virginia, with nearly one location per 1,000 residents. The area is among the poorest sections of the Richmond metro, with a median household income about $ 10,000 below the state average.
Payday lenders offer short-term, high-interest loans to consumers using the borrower’s paycheck as collateral.
Until last year, these companies could charge $ 15 for a two-week $ 100 loan, or an annualized interest rate of 391%. The General Assembly capped the rate at 36%, charging for a two-week loan $ 1.38.
For example, some payday lenders have started offering a different type of loan, called an indefinite loan, which is not tightly regulated. This year, the General Assembly responded by passing a law prohibiting payday lenders from granting open-ended loans. On April 8, lawmakers approved Governor Tim Kaine’s recommendation that the law take effect immediately.
The result: Several payday lenders – such as Check ‘n Go and Allied Cash Advance – are leaving Virginia. Advance America, which operates Cash Advance Centers in Virginia, is also on the ropes.
“The 36% rate cap would bankrupt us,” said Jamie Fulmer, spokesperson for Advance America, the nation’s largest payday lender. “We would only earn $ 1.38 per two weeks – less than 10 cents a day. We would not be able to pay our workers or our owners.
Some see the demise of payday lenders as inevitable.
“The people who have shares in these companies have seen that the regulatory climate is changing, so it’s not a smart place to invest money for the long term,” said Stephen Graves, professor of geography and expert in payday loans at California State University at Northridge. .
“I think there will not only be a decrease in the growth rate, but I think there is a chance that the industry will be wiped out all together,” he said.
Good riddance, say payday loan critics such as Dana Wiggins of the Virginia Poverty Law Center. She says that such loans trap consumers in a cycle of indebtedness: “People become dependent on them.”
LaTonya Reed of the Virginia Interfaith Center for Public Policy agrees.
“It is our core belief that it is unacceptable to charge excessive amounts for loans based on the teachings of various traditional religions,” Reed said.
However, industry proponents argue the opposite: Payday lenders provide a valuable service to average Americans who find themselves in unexpected financial hardship.
“We are focusing on densely populated retail areas close to where citizens work, live and shop,” Fulmer said. “It’s the majority middle class that needs support from time to time.
Payday loan clients encompass a range of people, but lenders are clustered in specific geographic locations. Low-income Virginia zip codes have more payday loan locations than higher-income zip codes, according to Capital News Service analysis.
Graves has found a similar pattern among payday lenders in other states.
“They are among the desperate, and that’s what makes them predatory,” Graves said. “If they were distributed evenly and they were a product that everyone could enjoy, then their site localization strategy would be to expand. “
The CNS analyzed the location of the 598 registered payday loan stores in Virginia as of April 7. The analysis looked at the number of payday lenders by zip code and by zip code tab area. (A ZCTA is an area based on the first three digits of a zip code.) The analysis also included income and poverty data from the US Census Bureau. A map of the state’s payday loan locations is available here.
Overall, Virginia had about eight payday loan stores per 100,000 people. The state’s median household income was $ 46,677, and 9.6% of Virginians lived in poverty, according to the latest census data.
The 232 ZCTA, which includes Richmond, had approximately 11 payday loan stores per 100,000 population, for a total of 55 stores. The median household income is $ 41,342 and more than 12% of residents live below the poverty line.
The regions with the most payday lenders per capita were significantly poorer than the state as a whole:
- Portsmouth had about 25 payday loan shops per 100,000 inhabitants. The region had a poverty rate of 16.2 percent.
- Norfolk had about 20 payday loan stores per 100,000 people. Her median household income was $ 25,827, and her poverty rate was 18%.
- Southwest Virginia had about 15 payday lenders per 100,000 people. Her median household income was $ 31,864, and her poverty rate was 19.3%.
The model is also valid for postal codes. For example, 29 postal codes in Virginia had more payday lenders than banks. The Census Bureau had demographic data on 23 of these postal codes (the rest were newly created). Of those 23 zip codes, 21 had a median household income below the state median.
The other end of the spectrum is also telling: high-income regions had few payday lenders. For example, ZCTA 221 and 201 – tracts of Northern Virginia with a median household income of nearly $ 78,000 – each had about three payday lenders per 100,000 population.
“They’re not in my neighborhood, I know that,” Graves said. “And I’m a middle class white man.”
His research revealed that payday lenders congregate near military bases. Graves was not surprised that Portsmouth and Norfolk, which have a large number of military personnel, had a large number of payday loan transactions.
“These are the heaviest concentrations in any near fault-free state,” Graves said. In most of the states he studied, the “zip code with the highest concentration of payday lenders was adjacent to a military base.” How can you say that you are not targeting the military? “
In Virginia, zip code 23452 had the most payday lenders: 14. It is next to Naval Air Station Oceana in Virginia Beach.
In 2006, the federal government passed a law prohibiting lenders from granting loans above 36% interest to military families. Congress was responding to allegations that payday lenders were targeting military personnel.
But payday loan operations claim they don’t target specific groups.
“This is an allegation in which the facts of the case do not match,” Fulmer said.
He characterized the average payday loan client as an owner with average income, a high school diploma, and some college experience.
Customers are people like Brenda Cherokee, who was at the CheckSmart store, 4503 W. Broad St., on a recent Wednesday. Cherokee had just made a payment on her fifth payday loan from last year.
“I chose it over other options because it was an immediate need and I didn’t have enough to cover the expense of my savings,” she said.
Cherokee, a nurse, said she uses payday loans responsibly and repays them as soon as she can.
“Some people don’t,” she said. “They borrow more than they can afford, and then they find they can’t get out of this hole. “
Sara Griffith and Josephine Varnier are journalism students at Virginia Commonwealth University. They contributed to this report through the Capital News Service.