New Lines of Credit Don’t Skirt Recent Assembly Reforms
Richmond Times-Dispatch
January 25, 2009
by: Ken Compton
Virginians are facing severe economic difficulties, with financial institutions restricting lending and access to credit. In addition, unemployment rates are rising, resulting in more families transitioning from two-income to one-income households, and hourly jobs and overtime payments are being scaled back significantly.
Amid this economic backdrop, our company, Advance America, recently began offering a new credit product to serve our customers in Virginia -- in addition to the modified payday advance product introduced this year.
Our supplemental product -- a line of credit between $500 and $750 -- was approved for sale by the State Corporation Commission. It affords consumers more flexibility, a higher loan amount, and a longer term of repayment -- with the requirement that they continually pay down principal. We believe that it provides consumers, many of whom have limited credit options, a critical choice to help them manage their financial obligations.
Despite recent criticism, it was never our intention to circumvent the new payday loan reform law. Indeed, the line of credit product is not new to Virginia; a variety of businesses have offered it for years. And Advance America continues to make payday advances available at all of our stores.
We do not market the line of credit as a "better" choice for our customers -- and our employees say, based on initial reporting, that consumers are evenly mixed in choosing the line of credit or a payday advance to fulfill their needs. Simply put, the new payday loan product meets some consumers' interests and the line of credit meets others. It is simply their choice.
Still, as our in-store feedback reflects, I am mindful that sometimes what you see and hear depend greatly on where you are standing.
New payday advance regulations in Virginia are extensive and provide consumer safeguards. We appreciate the effort of the General Assembly and governor to have forged a compromise on a complex issue. But, to some degree, the additional regulations change what consumers say they like about payday loans -- that they offer a simple, transparent and straightforward avenue for managing unexpected expenses.
In response to consumer demand and limited credit options available in the marketplace, Advance America decided to offer the line of credit after regulators reviewed the product and approved it for sale in Virginia. We agreed with the State Corporation Commission to comply with 10 conditions in order to offer payday advances and the line of credit as options to our customers, including a prohibition against allowing consumers to have both products open at the same time.
Further, we do not issue payday advances or lines of credit in amounts that are more than a customer can afford to repay. We require an examination of income before a customer is eligible for our services. Many middle-income households and consumers with imperfect credit histories see their financial choices narrowing, access to credit tightening, and bank fees surging. Now more than ever, people need continued access to relatively small-dollar credit.
Regulated payday advances, recently augmented with new consumer protections, help hardworking people meet unforeseen expenses and manage short-term financial difficulties. Particularly for consumers who may have a limitedor lower-credit history, access to our line of credit is another legitimate option.
We contend that Virginians deserve the financial freedom to consider alternatives and choose the credit option that best suits their needs.
Ken Compton is president and CEO of Advance America, a payday lending company that does business in Virginia. Contact him at president@advanceamerica.net .
