The Payday Loan Public Option: As Bad As It Sounds

The Virginia State Credit Union is mining for gold and it’s finding it.  Thanks to former Virginia Governor Tim Kaine, state employees are being duped into a credit product designed to take more money from their paychecks than the payday loans it was designed to replace.  Not only that, this spider catches its flies via unfair competition.

Welcome to The c, or “Virginia PDL Public Option”.  It’s as bad an idea as has ever come into the credit space, short of the credit default swap.  Naturally, it is the invention of Government.

I’ll jump over all the usual falsehoods that Mr. Kaine presents and cut to the chase.

What’s so bad about this program?  Let’s take the unfair competition part first.   I don’t have any problem with the government entering the consumer credit business, just as I have no problem with a fair public option for health care, as long as the playing field is level. Therein lies the rub.

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.

(more…)