As states try to get rid of payday loans, other types of loans pop up in their place. Photo Credit: AR McLin/Flickr.com/CC-BY

Virginians frequenting pawn shops and title lenders more

Many states have passed laws intended to closely regulate, if not outright eliminate, payday loan lending. However, such laws don’t eliminate the need or demand for a short term credit product. The state of Virginia passed laws several years ago capping the interest rate on payday loans, which has reduced use of that particular product but not demand for financial help. Up to 10 percent of all Virginia households were estimated to have used some sort of alternative financial service, according to BusinessWeek, in a recent study done by the University of Virginia. Four percent of Virginians reported using payday loans at some point and 3 percent frequent pawn shops. Between 2004 and 2008, 70,000 Virginian households used refund anticipation loans and between 2005 and 2009, almost 150,000 Virginians used car title loans.

New class of lenders

Some of the most frequent laws passed against payday lending mandate loan repayment be done over a period of more than two weeks. The state of Colorado passed a law a year ago making the repayment period six months instead of a couple of weeks, according to the Greeley Gazette. As a result, former payday loan lenders are offering six month installment loans. When Arizona let the law allowing payday lenders to lapse in 2010, many thought that payday lending would disappear. Instead, according to the Arizona Republic, many stores simply started offering car title loans instead. In February of this year, a bill was introduced to the Arizona legislature that would authorize installment loans at higher-than-normal interest, as many consumers still need a source of short term credit. North Carolina, according to BusinessWeek, just approved a bill authorizing installment loan lenders to charge more than 36 percent interest on loans up to $1,500.

Supply and demand still rule

Though there are many products that a lot of people find less than palatable, such as payday loans, there is obviously still a demand for these products. A lot of people who don’t have access to bank credit find themselves short in between paydays or have an emergency come up that they didn’t plan for. Then they have to seek out alternative financial service providers in order to get the credit they need. Because many of these lenders don’t benefit from the kind of protections banks enjoy, they have to charge higher interest rates in order to stay open. It is undeniable that there is a demand for these types of short term credit.

Sources

BusinessWeek on VA

Greeley Gazette

Arizona Republic on payday loans leaving

Arizona Republic on new loan bill

BusinessWeek on North Carolina

The state of Virginia still allows payday loans and car title loans, but there is a good deal of legislation concerning both products in the state. Photo Credit: AR McLin/Flickr.com/CC-BY

The state of Virginia has been on the front lines of regulating short term loan lenders like payday loan and car title loan companies in attempt to reduce their use. Both consumer finance products have been subject to stricter legislation that has dramatically reduced the use of such products.

Car title loan lenders operating without license in Virginia

The state of Virginia has recently released its first report about use of car title loans in the state, according to WHSV, an ABC affiliate in Harrisburg, Va. The state of Virginia passed a law that capped the interest rate and fees that could be charged by car title lenders in the state. That law took effect in October of 2010. The law also required that any businesses lending such loans get a license to operate in the state. In the last three months of that year, 25,000 loans have been lent for a total of $21 million in loan capital. There were almost 200 people whose cars were taken away because of default. According to The News Leader, a Gannet newspaper in Staunton, Va., there are 23 title lenders operating in the state but only seven are licensed.

Illegal online lending considered a problem

Consumer advocate groups like the Virginia Poverty Law Center are advising Virginians not to enter into any contracts with any unauthorized parties such as unlicensed title loan lenders and online payday loan lenders. Lending online payday loans is a felony in Virginia. Payday loan lenders themselves are authorized if the businesses are licensed and contained to a brick-and-mortar store. Laws were passed in 2008 that regulated payday loan lenders. There were more than 800 payday lenders in Virginia in 2007, according to the Washington Post. By 2010, there were fewer than 300. Legislation that would institute an interest rate cap of 36 percent has been brought before the Virginia General Assembly but never passed.

Credit carries risk

Payday loan lending and car title lending are seen by some as predatory, while others see them as simply alternative forms of credit. Any and all forms of credit carry risks. Credit cards can keep a person indebted in perpetuity, and the thousands of people who have lost their homes to foreclosure can attest to the risks of mortgage foreclosure. People who have hundreds of thousands of dollars in debt with student loans can’t discharge the debts they accrued for their education, even in bankruptcy. Laws vary by state, and borrowers should always do their homework concerning any financial product they are interested in obtaining.

Sources

WHSV

News Leader

Washington Post

Predatory lenders attack when a loan is originated; loan sharks attack later, when the loan is being serviced.

Earlier this month, the Virginia House of Representatives voted overwhelmingly (96 to 2) to place new restrictions on car-title lending. Loans secured by vehicles have become very popular. Increasingly, however, they are being attacked by consumer protection advocates and other special interest groups as a particularly virulent form of predatory lending.

Following the lead of a similar law in Tennessee, law-makers in Virginia made a failed attempt to regulate car-title lenders last year. Two years ago, however, they managed to enact legislation regulating payday lenders.

Virginia places limits on car-title loans

According to the Washington Examiner, the Virginia legislation will do away with open-ended car-title loans and limit loan terms to one year. It will also establish minimum standards for borrower eligibility, restrict loan amounts to 50 percent of vehicle values, establish interest caps and prohibit the charging of interest after a vehicle has been repossessed.

What is predatory lending?

Predatory lending generally refers to unfair, deceptive or fraudulent practices by lenders during the loan origination process. There is no precise legal definition of predatory lending, but according to Wikipedia, the FDIC has broadly defined the term to mean the imposition of “unfair and abusive terms on borrowers.”

There are, of course, many state and federal laws prohibiting specific practices that satisfy the FDIC’s definition of predatory lending, but the term is basically used as a catch-all for various illegal activities in the generation of loan agreements. Predatory lending issues frequently concern loans secured by cars or real estate, which can be structured to facilitate a borrower’s default and to create unfair profits for the lender as a result of repossession or foreclosure.

Will the new Virginia law stop predators?

At least one outspoken Virginian thinks the new car-title loan regulations are, to put in inelegantly, “a joke.” Writing for the Daily Press, Carol Capó points out that the enactment of payday lending regulations in Virginia opened the door for unscrupulous lenders to circumvent the intent of the law by shifting their business to car-title loans.

Car-title loans,  Capó says, inflict even more harm on borrowers in precarious financial situations than payday loans do. When borrowers in desperate need of money pledge cars as collateral for high-interest loans, they don’t just risk losing their cars. They risk being unable to get to work where they can make money to pay off the car-title loans as well as the other debts that drove them to desperation in the first place.

What do predators do with all that money, anyway?

Capó says the interest rates allowed by the new legislation are exorbitant, and that they resulted from proverbial lobbying efforts. Car-title and open-ended lenders, she says, bought the interest rates they wanted by contributing more than $1.5 million to Virginia politicians over the last five years.

Thinking of running to the pawn shop to get a little help? Think again.

Pawn shops have been around for a long time. In fact, some historians say they are the oldest form of lending. So often, when people are short on cash and need some finances right away, their first thought is to go to the pawn shop. Of course, that means you must bring some collateral.

At a pawn shop, you must trade a piece of property for your short-term loan, which is called a secured loan. Through Personal Money Market, you can get unsecured loans. That means you can get cash without trading anything. All we need is your promise to pay back your unsecured loans on time, and you’ll have cash in just a couple of hours. Even if you need cash to get bailed out of jail there is bail financing for that.

Get started on your unsecured loan application

How can we hand over cash with no collateral and give out unsecured loans? There are, of course, fees for the lenders’ services, but you don’t have to pay until your loan is due. The fees are lower than the average bank’s overdraft charges, so  it’s cheaper than running out of money completely and you don’t run the risk of losing your property.

So why do we trust borrowers to pay back their loans, even though we don’t take any collateral? Because it works. The vast majority of people who take out unsecured loans pay them back on time, complete with lender’s fees. So borrowers get the cash they need when they need it, they save money because they don’t overdraw their bank accounts and the lenders make a little money. Everybody’s happy.

Unsecured loans versus car title loans

Another type of secured loan that has become popular lately is a car title loan. That means you trade your car title in exchange for a short-term loan. If you don’t pay back your loan, you could lose your car. You can borrow just as much money through Personal Money Market in the form of an unsecured loan, and you don’t run the risk of losing your car.

There are hefty fines if you don’t pay back unsecured loans on time. That’s why it is very important to only borrow what you can afford to pay back when you get your next paycheck. If you need cash fast, and you are qualified, our lenders will automatically deposit your loan into your account, sometimes as quickly as just a couple of hours.

To get started, just click APPLY NOW.