Virginia Senator Pledges to Combat Predatory Payday Loans
Inside Subprime: Dec 20, 2018
By Lindsay Frankel
State Senator Scott Surovell intends to introduce legislation in January to halt predatory lending practices in Virginia, according to a statement released in Covering the Corridor, an independent Richmond news source. Predatory lending, or the practice of making loans with high interest rates while neglecting to verify a borrower’s repayment capabilities, causes financial harm to vulnerable Virginia residents.
Though Virginia has taken steps to end abusive loan practices, lenders have exploited loopholes, and risky, high-interest loans are still available in Virginia. The Virginia General Assembly placed restrictions on payday loans in 2009, capping interest rates at 36 percent and prohibiting borrowers from having more than one outstanding payday loan at a time. This caused the number of payday loan storefronts to drop, but a year later, some of the same companies convinced the legislature to permit car title loans in the state. These loans can cost borrowers up to 267 percent APR.
Around 2014, car title lenders discovered a historic license that would allow them to charge even higher interest rates. Created in 1918, the license was intended to allow small-dollar, low-interest loans, but did not impose an interest rate cap. Car title loan firms began opening up companies that provided these consumer finance loans within title loan storefronts, allowing them to issue loans with interest rates topping 300 percent. Surovell introduced legislation in 2016 that would prevent this practice, but the bill was killed by a Senate committee after the industry made a promise to stop issuing the high-interest loans.
Fortunately, the practice ceased, but payday lenders have resurfaced due to another loophole. Virginia law permits lenders to use open-end credit lines without limits on interest rates. Payday lenders in Virginia now use these open-end credit lines to issue high-interest loans to people who have few alternatives for borrowing. Virginia residents can get a $100-$3,500 line of credit with an annualized interest rate of over 500 percent.
Surovell’s new legislation would protect consumers from automatic account debiting and abusive collection practices associated with open-end credit arrangements while prohibiting borrowers from holding multiple loans simultaneously. While the bill was killed last year, Surovell hopes it will gain more traction now that Senate Minority Leader Dick Saslaw is co-sponsoring the bill. Surovell also intends to introduce legislation that would limit interest rates on consumer finance loans to 36 percent.
Surovell said that combating predatory lending in Virginia has been an ongoing, 8-year battle, and he doesn’t plan to stop fighting for more robust consumer protections. “Lending money to people who are confused by complicated terms and slick sales tactics, people who have little ability to repay them is coercive, immoral and wrong,” said Surovell.