New loan program for state workers wins praise

Consumer advocates yesterday praised a new program launched by Virginia to help state workers get emergency, short-term loans without having to turn to payday lenders.

Citing the dangers of "predatory" lending and the worst economic recession since the 1930s, Gov. Timothy M. Kaine yesterday announced that employees will be able borrow up to $500 twice a year to help meet financial needs.

The loans, administered through the Virginia Credit Union and backed by the nonprofit Commonwealth of Virginia Campaign, will have a 24.99 annual percentage rate and have a six-month repayment period -- substantially less than rates charged by payday lenders.

"People do need to borrow money sometimes and borrow money in amounts where they couldn't get traditional lending institutions and banks to lend to them," Kaine said in announcing the Virginia State Employee Loan Program.

Officials said repayment will be directly debited from an employee's credit union account and there will be no origination fees or penalties for early repayment. To qualify, workers must be credit union members in good standing and take a financial-fitness course online.

In a statement, the Virginia Interfaith Center for Public Policy called the program "a solid first step towards expanding the menu of affordable small-loan options available to lowand moderate-income consumers."

It added: "We hope that other financial institutions will adopt similar creative lending models to give Virginia's hard-working, low-income citizens real choices."

Officials said yesterday that they do not know how many of Virginia's 100,000 employees would take advantage of the program, which advocates said is similar to a program offered to state employees in North Carolina.

But officials said there is a need for the service, based on findings from a survey and research by the Commonwealth of Virginia Campaign -- the employee-run organization that coordinates the charitable giving of Virginia government workers.

Last year, state employees contributed $4.4 million to charity. This year, they decided it makes sense to also offer assistance closer to home, and they will back the loans through an administrative account set aside to run the organization.

Kaine noted that the rate is lower than the 36 percent limit advocated by the anti-payday-lending interest groups. "And it's far lower than the predatory rates that averaged 365 percent in Virginia last year," he said.

The nonprofit Center for Responsible Lending called the program a "step in the right direction to help state employees."

In a statement, the group said: "State employees are not alone in falling prey to usurious predatory lenders in these difficult times." The group also encouraged the Virginia legislature to pass even tougher restrictions to the payday-lending business when it reconvenes next year.

Kaine said that since reforms attempting to limit payday lenders were enacted by the legislature this year, the number of payday loans being taken each month by Virginians has dropped significantly, from 281,000 to 45,000.

"We think if other employers can learn from the program that we're putting in place and do it, we think we can dramatically drive down the need for people to seek loans from predatory sources," the governor added.