The state of Virginia has announced they plan to compete with payday loans. Virginia said it will offer six-month loans of $100 to $500 to state employees facing financial difficulties according to the Governor.
These loans will have a 24.99% APR and no late fees or credit checks. Borrowers will be required to take an online financial course and a brief financial literacy exam.
The good news for Virginia is that they are only offering this to state employees. The reason? They would learn the hard way why payday lenders operate the way they do. Of course, they can ignore all the laws about collections and simply take whatever payments they want from the state employee’s paycheck.
But this begs the question- why only offer these to state employees? If there’s clearly this better way to operate short-term loans that doesn’t cost as much to the borrower, why haven’t other lenders jumped on this competitive advantage? Why doesn’t the state offer loans to all?
The reason is because they know an operation of this sort cannot survive as a business. That is why loans are only offered to state employees. That way no one can ever default on their loan, because the lender and employer are one in the same. The employer/lender needs simply garnish the wages of the borrower, and they get their money back.
And that is why these loans are not offered across the board to the should-be-infuriated citizens of Virginia. Pretty pathetic this blatant display of how payday loans simply cannot survive under those terms. Now maybe people are seeing the reason the APR is so high- real lenders have to account for defaults. Virginia does not.
