This is a guest post by Connellee Armentrout. Connellee is originally from Roanoke, Virginia and is a second year law student at the University of Richmond.
A strong car-title and payday lending lobby and an acquiescent General Assembly have made Virginia the king of predatory lending. Del. Glenn Oder (R-Newport News) said he fears that Virginia is becoming the “capital of predatory car-title lending on the East Coast,” and both Maryland and D.C. officials have expressed concern that Virginia’s free-wheeling, high-interest loan practices will go so far as to harm their own citizens. Now, as most states are legislating to curtail these lending practices, a bill (SB 1367) is sliding through the Assembly that would allow car-title lenders to offer these loans to out-of-state borrowers.
Predatory car-title loans trap consumers in cycles of debt which, in recent years, has contributed to foreclosures and home loss in Virginia. Car-title lenders offer quick (same day) high interest loans, which are secured by the borrower’s car title. These loans are usually made to desperate borrowers, who quickly fall behind on payments. For example, Danielle Battle of Fort Washington paid $7,000 ($800 a month), on a $2,500 car-title loan, but when the lender told her that she owed an additional $7000 lump sum (totaling a staggering $14,000 repayment on a $2500 loan) to keep her car, she woke up to find her Xterra missing from her driveway.
The reason such loans are considered predatory is two-fold. First, these lenders target low-income individuals, who generally have pre-existing credit problems, and, second, the industry relies on interest rates that can rise to several hundred percent per year. In addition to charging high rates, the lenders use confusing rate structures to hide the actual annual rate that borrowers pay. Virginia Code §6.2-2216 governs the applicable rates, but it institutes a confusing stepped system of rates that not only allows interest to be calculated monthly, obfuscating the actual annual rate paid, but also levies different rates on different portions of the same loan. For example, under §6.2-2216, Ms. Battle’s $2,500 loan was subject to three different interest rates; that is, the first $700 of the loan accumulated a different interest rate than the second $700 or than the residual amount of $1,100.
Bills have been introduced in the General Assembly to protect borrowers by capping the annual interest rate car-title lenders can charge, but all of these bills have been killed. The reason that borrower protection cannot gain traction is that the predatory lending lobby is particularly strong in Virginia. In fact, four of the largest car-title loan companies have donated more than $1.05 million dollars to Virginia politicians since 2004, and those hefty donations are given to both Democrats and Republicans.
Not surprisingly, the legislator who has received the largest contribution from the car-title loan lobby, Senate Majority Leader Richard Saslaw (D-Fairfax), is the sponsor of SB 1367, which would allow Virginia car-title lenders to lend to out of state borrowers. When a car-title lender makes a loan, it adds itself to the car title to assert its security interest in the car. So, under current State Corporation Commission regulations, Virginia lenders may only lend to Virginians because title requirements vary from state to state. But, SB 1367 was drafted, at the car-title lenders’ behest, to overturn this regulation.
The Bill was originally assigned to the Senate Committee on Commerce and Labor, where it passed 12 in favor and 2 opposed, and every member of the committee except two has accepted donations from at least one of the three largest car-title lending donors. In fact, between 2004 and 2010 the average donations to a member of the committee was over $8,000.
Out of committee, the bill then passed the Senate 32 in favor, of which 29 received donations from the car-title lobby, and 2 opposed. In addition to individual contributions, since 2004, the Senate Democratic Caucus has received $46,250 and the Senate Republican Caucus has taken $32,500. Having passed the Senate, SB 1367 has now made it out of the House Committee on Commerce and Labor, but there is room for some optimism because bill faced somewhat more resistance in the House committee where 9 members voted against the bill.
While SB 1367 doesn’t change lending practices for Virginians, Maryland’s Attorney General and D.C. Council member Mary M. Cheh have expressed concern that Virginia’s oppressive car-title lending laws will now effect their own citizens. Because Virginia is well behind the legislative curve on title lending, nearby states fear that the problems associated with predatory lending will seep into their own states. Our neighbors’ fears alone show how backward Virginia’s car-title lending laws are.