Pew Reports Dangers of Virginia Payday Loans and Title Loans
By Lindsay Frankel
A new report from Pew Charitable Trusts revealed that Virginia payday loans and title loans are some of the most harmful in the country for borrowers. These types of credit cost Virginians up to three times more than in other states.
Borrowers can get payday and title loans without a credit check, which makes them appealing to people with bad credit or no credit history. But these borrowers are often some of the most vulnerable to enduring financial harm from high interest and fees; payday lenders disproportionately impact low-income people, minorities, military members, seniors, and people with disabilities.
And payday loans aren’t used only for emergencies or only on a one-time basis. 69 percent of Americans use these risky loans for regular expenses like rent and food, and the average borrower stays in debt five months out of the year.
Hundreds of thousands of Virginians use payday loans without the protection of robust regulations. Borrowers pay an average of 251 percent APR on Virginia payday loans.
In some ways, title loans are an even bigger problem for Virginians. Because it costs $2,700 on average to pay back a $1,116 title loan, many cash-strapped borrowers struggle to meet their payments. And since borrowers give up the titles of their cars as collateral, going into default leads to repossession. One in eight Virginia title loan borrowers have their cars repossessed each year. That’s one of the highest rates in the nation. And lenders sell 79 percent of those vehicles when borrowers don’t have the money to reclaim them. But while borrowers are suffering from loss of transportation, making it difficult for them to work and earn income, title loan companies are flourishing. There has been a 130 percent increase in the number of title loan storefronts since 2010.
Pew also pointed out that more modern regulations would encourage low-cost lenders to operate in the state and increase competition, all while creating more affordable financial products for Virginians in need.