UPDATE (April 2):
When the Virginia General Assembly resumed session on April 22, lawmakers approved an amendment proposed by Gov. Ralph Northam to expedite implementation of a new law designed to help protect consumers from predatory loans.
Senate Bill 421, backed by an overwhelming majority of voters in a VCU poll, will now come into force on January 1, 2021, instead of July 1, 2021.
The law, dubbed the Virginia Fairness in Lending Act, fills loopholes in current Virginia law that allow high-cost lenders to charge consumers excessive rates for payday and title loans.
Gov. Ralph Northam last weekend approved a bill that advocates say will help protect consumers from predatory lending.
The Virginia Fairness in Lending Act, passed by the House of Delegates and the Senate earlier this year, focuses largely on the parameters of short-term lending. It strengthens regulations on consumer loans, financing for personal or household purposes and fills existing loopholes for businesses.
The governor has proposed an amendment to speed up the date of entry into force of the law from July 1, 2021 to January 1, 2021, which will have to be approved by the General Assembly when it is reconvened next week.
The law was passed largely with Democrat backing, but was supported by some Republicans in every chamber.
It was sponsored by Del. Lamont Bagby, D-Henrico, in the House and by Senator Mamie Locke, D-Hampton, in the Senate, and the Virginia Poverty Law Center, an advocacy group for low-income Virginians, helped draft the legislation.
It essentially fills loopholes in current Virginia law that allow high-cost lenders to charge consumers excessive rates for payday loans and title loans.
For years, payday lenders have charged consumers in Virginia three times the prices in other states. One in eight title borrowers has repossessed a vehicle, one of the highest rates in the country.
Of the. Mark Levine recalled receiving a $ 1,000 loan offer from a company with a 299% interest rate buried in the fine print.
“As the business compounds daily at this interest rate, this loan would cost anyone desperate enough to accept this offer over $ 20,000 in interest and fees if they tried to pay off the $ 1,000 loan in full. only one year after receiving it. Levine, a Democrat from Alexandria, said in
If the loan had not been hit for two years, the interest charge would have reached $ 400,000, Levine said.
But the new law is designed to help control situations like this. According to a poll conducted by the Wason Center for Public Policy, voters in Virginia overwhelmingly supported (72%) the reform.
Jay Speer, executive director of the Virginia Poverty Law Center, said, “We have been fighting for years to reform predatory lending, and it is a relief that we can finally end this legislative struggle. We’ve struck the right balance to make loans affordable for borrowers and still profitable for lenders. There’s no reason other states would allow lenders to charge higher prices, either. “
The law also applies to auto title loans, where the borrower offers his car as collateral. It sets the interest rate on securities loans at a maximum of 25% of the federal funds rate at the time of the loan.
An estimated 12 million Americans take out payday loans each year, racking up $ 9 billion in loan fees,
. Borrowers can fall into the “debt trap”, a situation in which a borrower is unable to repay a loan due to high interest rates. the
that the average annual percentage rates in the state are 251% for payday loans and 217% for title loans.
Several payday lending institutions declined to comment on the legislation when Capital News Service asked for comment earlier this year. Peter Roff, senior researcher at Frontiers of Freedom, a Northern Virginia-based nonprofit that promotes limited government and free enterprise, wrote in a recent opinion piece that although the laws on loans to the consumption need to be reformed, the current legislation would create inequalities and less availability among consumers. credit market. He said lawmakers should focus on better reform and “not just on politically popular ideas.”
The Virginia Fairness in Lending Act states that the amount needed to regulate consumer lending will be just under $ 300,000 and will be accrued by the fees required for lenders to obtain a license. There are currently 15 approved lenders with over 150 locations in the state, in addition to online lenders.
“Internet lenders use these loopholes, like open-ended credit, which have no regulation,” Speer said. “Bill 789 and Senate Bill 421 fill all these loopholes and put in place a fair system for borrowers and lenders. “
“Getting across the finish line to this legislation remains a high priority for the Virginia Legislative Black Caucus (VLBC) as we continue our efforts to protect Virginia families from predatory lending practices that prey on our most vulnerable. for decades, ”explained Chief House boss and Delegate Lamont Bagby (D-Henrico). “This legislation was essential before COVID-19 began to impact our communities. Now, even more Virginians may find themselves in financial difficulty and vulnerable to predatory lending practices. We need to put these strong consumer protections in place as quickly as possible so that people can have more affordable credit. “