Virginia working to reduce use of payday and car title loans

Payday loan store

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

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