Cross the West Virginia borders and one of the first things you will notice is a variety of payday loan or check cashing businesses. These operations usually give those who have money problems a loan with ridiculously high interest rates that snowball and keep the borrower under the thumb.
You see them across the border on a large scale because this type of business is illegal in West Virginia. While state law cannot prevent anyone from getting into Ohio and getting bad credit, it at least protects its citizens from predatory credit within its own borders.
That could change if Congress doesn’t act soon. The federal government is not trying to get rid of state laws that prohibit payday loans, check cashing, installment loans, or laws that cap the interest rates these companies can charge. However, a relatively new rule allows these companies to bypass these state laws if the bank with the loan title is located in a state without such rules.
West Virginia also banned this practice when the state Supreme Court ruled against a company called CashCall that granted West Virgins small loans of up to $ 5,000 at an obscene interest rate of up to 96%. Collection practices were inconsiderate.
When the deal was brought to court by Attorney General Darrell McGraw of West Virginia and successor Patrick Morrisey eventually took over the helm, CashCall argued that it did not violate any laws in West Virginia because the loans were from a bank in South Dakota. Critics call this a “rent-a-bank” system. The Supreme Court found that the company illegally used the bank’s name to circumvent state law. This decision further protected the West Virgins from predatory lenders.
The rule passed by the Federal Office for Currency Control last year, which is deceptively called the “True Lender” rule, enables this type of lending to be resumed. It already has in some states where companies bypass interest rate caps. A non-partisan coalition of attorneys general from 25 states has come together to oppose the true lender rule for Congress (West Virginia is not one of them).
There will be a hearing in Congress on Wednesday. The House and Senate could lift the rule, but according to federal regulations, they would have to do so by mid-May. Otherwise it becomes permanent and can only be reversed by the Office of the Currency Auditor. That could never happen. Even if it did, it could take a long time to complete while West Virgins and other Americans may be taken advantage of by predatory lending practices beyond what is allowed in a particular state.
Protecting the West Virgins from financial ruin through such lending practices is one of the things this state does very well. Why would anyone but a few unscrupulous lenders want to change that? The entire West Virginia congressional delegation should support the repeal of the true lender rule.