Reforms for unregulated car-title loans

The predatory lending practice waged by car-title lenders against consumers caught in a cash squeeze will finally be regulated if Gov. Bob McDonnell signs the legislation.

Under reforms approved by the General Assembly late last week, car-title lenders could continue to charge interest rates that exceed 250 percent annually, but they would be limited in how much they could lend borrowers. That amount could not exceed 50 percent of the value of the borrower’s vehicle.

The measure regulating the currently unregulated car-title lenders would put a one-year limit on the loans, set a maximum interest rate of 22 percent per month and require lenders to be licensed. Currently, the lenders charge more than 300 percent annual interest and can repossess a borrower’s vehicle if he falls behind on the payments.

Senate Majority Leader Richard Saslaw, D-Fairfax, sponsored the legislation and told the story of a Harrisonburg man that illustrates the need for regulating the usurious lending industry. The man took out a $1,500 car-title loan and paid $380 per month for about a year. After paying more than $4,700, he still owed the $1,500 principal.

Saslaw’s bill, which has been sent to the governor’s desk, would cap interest rates at 22 percent per month, depending on the amount of the loan. Further, the loan must be repaid in full within one year and at least 8.25 percent of the principle must be paid each month.

Saslaw said those provisions would put a stop to endless payments that never reduce the amount that is owed.

Industry representatives say there are about 130 car-title lenders in the state, but since they are unregulated, no one has kept track of them. The industry is keenly aware of the importance of buying influence with state lawmakers. The lenders have given about $700,000 in contributions to candidates since 2007, with $190,000 of that coming in the past year.

Consumer advocates offered mixed feelings about the legislation, which they have sought for several years. “We are very disappointed by the really high interest rates,” said Jay Speer, a lawyer for the Virginia Poverty Law Center. “But this is a significant step forward in that it regulates an industry that was completely unregulated.”

Previous efforts to regulate the car-title lenders sought to impose an interest cap of 36 percent on the loans, the maximum rate allowed for banks and other lending institutions in Virginia. The car-title lenders, however, argued successfully to business friendly lawmakers that such a low cap would put them out of business.

If signed by McDonnell, the new law would become effective on Oct. 1.

Regulation of an unregulated industry has been a long time coming. Consumer advocates and others are hoping contributions to the governor’s campaign last fall from the car-title industry were not enough to gain his veto of the legislation.