More coverage of Virginia’s “public option”
January 8, 2010 | Virginia, alternatives, industry | Comments (0)IFC news has picked up on “Big Government’s” slamming of the Virginia state employees payday loan alternative:
The PDL Public Option provides loans up to $500, at a 24.99% APR, with a six-month term, and a limit of 2 loans annually. It requires membership in the Virginia Credit Union (VACU), which administers the program. The VACU also requires direct deposit of the borrower’s paycheck.
So we have traditional PDL businesses with their associated overhead of $9000/month and average default rate of 7% (which requires them to charge $15 – $20 per hundred borrowed just to make a profit) and have no guarantee whatsoever of repayment on one side. On the other, we have a public option in which the lender receives free advertising from the state government; is not required to make a profit (because credit unions are non-profit), and can therefore charge borrowers 95% less than traditional PDLs; allows borrowers to repay loans over a period 13 times longer than traditional PDLs; all the while enjoying a negligible default rate (because of paycheck direct deposit).
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