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Virginia House Panel Gives Its OK to Predatory Loans

Posted by Stephen on February 12, 2009

The News & Advance
Published: February 12, 2009

A House of Delegates committee has endorsed car title loans with exorbitant interest rates that can exceed 300 percent annually.

The House Commerce and Labor Committee effectively killed legislation last week that would have put a cap of 36 percent on the loans that are usually taken out by desperate families who are least able to pay the high interest rates. The committee, which tabled the measure by voice vote (thereby escaping a recorded vote for or against), seemed to say that it is perfectly acceptable in Virginia for lenders who have been characterized as loan sharks to impose such interest rates.

The committee includes Dels. Kathy Byron, R-Campbell County, and Ben Cline, R-Rockbridge.

Del. Joe Morrissey, D-Henrico, who introduced the legislation, likened the lenders to loan sharks, saying they prey upon those who can’t get traditional credit.

This latest form of predatory lending (the other is payday loans) works like this: A borrower who owns his or her vehicle can get a loan of up to 50 percent of its value by turning over the title and a duplicate of the keys in case the company wants to repossess it.

Now for the ugly details. The borrower is charged a membership fee of about $75 and $6 to record a lien on the vehicle. Nothing more is charged if the loan is repaid within 25 days. If not, the borrower pays about 5 percent of the principal and at least 25 percent interest each month.

If a borrower took out a $500 loan, for example, and took six months to pay it off, the borrower would pay more than $1,400. If the vehicle is repossessed, the borrower can either pay the amount that’s owed — plus fees — or the lender sells the vehicle.

Jay Speer, executive director of the Virginia Poverty Law Center, told the committee that the legal aid attorneys working with his center have been deluged with car title cases over the past few years.

He told the story of one man who took out a loan for $1,500, missed some payments and had his car repossessed. The man has paid $3,700 and got his car back, but he still owes $1,800.

Scott Johnson, who represents Community Loans of America, one of the two largest car title lenders in Virginia, said only about 6.2 percent of the loans end up with the vehicle being sold. But since the industry is not regulated, there are no industrywide figures on the number of loans or repossessions.

Morrissey pointed out that state Department of Motor Vehicle records show that last year the lending companies received at least 6,500 repossession titles, which are required to sell a repossessed vehicle.

Speer said the declining economy will only exacerbate the problems raised with car title loans. Referring to the committee’s vote, he said, “By not dealing with it, they are in fact endorsing it,” he said. “These places are set up on the street corner and people think that the government has looked at this and said it’s OK, so that gives them a level of comfort and it gets more people into the loans.”

Maybe the Senate will be less supportive of the usurious car title loans. A similar bill is expected to come up for a vote this week. For the sake of the victims of this predatory lending practice, let’s hope the measure advances through the full Senate.

If so, will the House Committee and Labor Committee have a change of heart? We’ll see.

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One Response to “Virginia House Panel Gives Its OK to Predatory Loans”

  1. Jay Speer said

    Thanks for your continued leadership on this issue. It looks like the General Assembly did at least stop the payday lenders from doing open-end loans (unless they are car title loans). A borrower recently sent me a copy of her paperwork when she got a “line of credit loan” from her payday lender. Below is some sample language from the contract which demonstrates just how abusive these products can be and how dangerous it is to just let the lender write whatever terms he wants with no regulation at all:

    Membership fees:
    • The initial amount of the membership fee is $45.
    • You agree that we may increase or decrease that amount in our discretion.
    • They charge it when the account is opened and the first day of each billing cycle.
    • You acknowledge that these membership fees are not finance charges (but of course they are).

    Finance charges:
    Based upon daily periodic rate. You agree that we may increase or decrease the daily periodic rate in our discretion

    Are these contract terms already being written into car title loans–who knows? They are unregulated.

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