For people who are really hard up for quick cash, reading the fine print of a contract is not always the top priority. That’s how many businesses thrive, charging interest rates in the hundreds to desperate consumers and trapping them in a cycle of debt. Now some elected officials are fighting back.
Like many people who find themselves in a cycle of debt, Teena Hamlin’s problems started with a few medical bills. That led to a series of internet loans, which led to more debt on top of mounting medical bills. That led to depression and stress and so she had to take time off work, which only made things worse.
"Being off work for a long time and having everything go wrong with my family. Whew. So.”
So she came here to Allied Cash Advance. It’s at the end of a strip mall with a Food Lion and a Dunkin Donuts in a leafy suburb of Richmond. She dives by this place all the time, and that sign in the window — the one that said loans up to fifteen hundred dollars — that sign seemed to offer the answer to all of her problems. So she walked in and walked out with cold hard cash.
"I didn’t feel triumphant or like I had done something great. No. I actually felt like I didn’t know what kind of problem I may have just created for myself. But it takes care of the problem I’m having right now.”
The kind of loan she took was known as an open-end line of credit. It was originally designed to let department stores sell things like washing machines, things that customers could pay down in installments. Recent years have seen all kinds of loan companies move into this space, offering without the same kind of rules and limitations that apply to payday loans or car-title loans. There’s only one limitation on these loans, a grace period of 25 days when the borrower cannot charge interest. Dana Wiggins at the Virginia Poverty Law Center says Allied charged Teena Hamlin illegal interest.
"Many consumers think that open-ended credit loans that they get are very similar to a repayment of a payday loan. And so many assume that they have these protections.”
Wiggins took the case to Attorney General Mark Herring, who is now suing Allied Cash Advance in Richmond Circuit Court. Allied did not respond to several requests to be interviewed for this story.
“We’re very pleased to see that the AG took this stand. I think it’s a benefit for all the consumers who are getting loans in this open-end credit space who may think that they have more protections than they actually have.”
Earlier this year, lawmakers on both sides of the aisle expressed concern about open-end lines of credit. And the even more shadowy world of internet loans. So they set up a work group that met all summer long, only to end without coming to any kind of agreement about implementing consumer protections.
Lisa McGreevy represented the Online Lenders Alliance at the work group meetings.
“Absolutely there should be consumer protections. We support a lot of consumer protections. But taking consumers access to credit away isn’t a consumer protection. It denies people the ability to have economic benefits.”
That logic doesn’t sit well with everyone.
“There’s a market for prostitution. There’s a market for crack. Why should I deny the crack addict? He wants his drugs, and he’s willing to pay good money for his drugs.”
That’s Delegate Mark Levine of Alexandria.
“When you start on crack, it’s very addictive and it’s hard to get off crack. There are people for whom borrowing $200 and having to pay back $20,000 is not a good life choice. And I know they need that $200. And I know they need it now.”
Levine says he’s still meeting with online lenders in an effort to find some kind of compromise. They want the ability to get a license to offer loans in Virginia. They don’t actually need a license to do this, but it would help them market the products. Levine feels that might give him leverage to implement some kind of a cap on the interest rates they can charge.
Meanwhile, on the other side of town, Teena Hamlin has returned to the Allied Cash Advance.
“I can’t believe I’m standing here, and this is open for business. And that’s just upsetting.”
She says she hopes Levine can come to some kind of compromise with lenders who she says are out of control.
"Do we live in a country where capitalism can be balanced with accountability and responsibility? Do we live in that America? I don’t know.”