Kaine says alternative to payday loans works

Nearly 2,800 loans have been issued by the state; the interest rate is 24.99 percent.

By Julian Walker

The (Norfolk) Virginian-Pilot

RICHMOND — Six months after it was launched, a loan program created to aid government workers has doled out nearly $1.4 million worth of loans in increments from $100 to $500.

Gov. Tim Kaine, who unveiled the program in July to give borrowers an alternative to payday lenders, believes those numbers show a successful model that can be replicated by private industry.

So far, nearly 2,800 loans have been issued. More than 1,300 of them came within the first month, according to the governor.

“The results of the Virginia State Employee Loan Program suggest that if individuals are offered an alternative to predatory loans, they take it,” Kaine wrote in a Dec. 30 Wall Street Journal editorial.

In Virginia, full-time workers who are members of the Virginia Credit Union are eligible to participate in the pilot program, meaning an estimated 100,000 state employees are potential loan recipients.

Loans backed by a state employee charitable fund are awarded after a borrower completes an online financial course and a test.

The interest rate is 24.99 percent, which amounts to a repayment of $108 on a $100 loan or $540 on $500. Borrowers are limited to one loan at a time and two per year.

The state loan program comes in the wake of General Assembly action in 2008 placing new regulations on the payday lending industry, including a longer repayment period and a state database designed to prevent borrowers from receiving more than one loan at a time.

One company with a similar program, Riverside Health System on the Peninsula, began offering loans in November 2008 after a company executive learned about the three-figure interest rates payday lenders can charge.

To start the fund, a health system contribution was combined with employee donations to provide financial backing for the program through a credit union, explained Riverside spokesman Peter Glagola.

Two types of loans are offered: as much as $2,000 to pay back a payday loan and up to $500 to avoid borrowing from that type of lender.

State officials and those at Riverside say most borrowers have repaid their loans and defaults have been isolated.

Riverside Health System has granted 124 loans to date, though Glagola said the frequency of requests has dropped significantly since the program started.

“What we have seen is it’s taking care of itself, it’s a sustainable program,” he said. “We believe it really has helped out this part of our employee population that has been using these loans.”

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