By Scott A. Surovell
Last month, Attorney General Mark Herring noted that Virginia was becoming known as the predatory lending capital of the East Coast. Predatory loans have exploded in Virginia.
In 2009, the General Assembly capped pay day loans at 36 percent. Payday lenders claimed they couldn’t make money with a 36 percent APR and fled the state. In 2010, car title lenders came to the legislature claiming to be different and secured passage of legislation creating their industry. Today, it is totally out of control.
Car title lenders are allowed to make loans against already owned motor vehicles. Loans are limited to 12 months, 50 percent of the value of the car, and can’t be used to refinance other loans. Lenders cannot sue borrowers, but they can repossess. Interest rates are capped at 30 percent per month – that comes out to an annual percentage rate of 264 percent per year.
About three months ago, the State Corporation Commission issued its latest annual report and the news is troubling. Car title lenders are thriving.
While the total amount of car title loans declined last year from $206 million to around $162 million and the total number of loans dropped from 177,775 to 155,128, the reduction is actually a mirage.
However, the largest car title lender in Virginia is Title Max. Not liking the new restrictions it negotiated, Title Max created a new company called TMX Finance, Inc., obtained a license from the state to operate as a consumer finance company, and co-located their new company in every storefront along with a Title Max. Consumer finance loans have none of the protections of car title loans, can be for longer terms, and can leave the consumer with less equity.
Title Max has been promoting these alternate loans, which have higher interest rates, longer terms and marginally smaller monthly payments. Consumer finance companies also have significantly lessened reporting requirements to their regulators. I introduced legislation to ban evasion of consumer protections by co-location illegal, but it was killed in committee.
Given the SCC’s reporting methods, it is impossible to determine whether predatory lending is really up or down in Virginia, but some facts are clear. First, the interest charged on Virginia’s 177,775 car title loans last year ranged from 84 percent to 268 percent and the average APR was 222 percent. Those are not typos.
The number of Virginians who failed to make a monthly payment rose from 33,387 to 38,286. That’s about 400 people per state delegate or nearly 1,000 people per state senator.
Out of those 38,286 defaults, 19,368 cars were repossessed and 14,949 were sold at public auction. Court judgments rendered totaled $150,593; the bulk of amounts owed were covered by repossession sales or debt collection tactics.
All of these statistics underscore the need for Virginia to step up and short of an absolute repeal of the law that allows these practices, to take action.
First, Attorney General Mark Herring has created a new predatory lending unit in his Consumer Affairs Division. His office brings a new focus on ensuring Virginia’s laws are being followed.
Second, short of repeal of car title lending, the state legislature needs to pass legislation prohibiting title lenders from co-locating consumer finance companies in title loan shops. The current system encourages bait and switch tactics and leaves consumers exposed.
Third, maximum interest rates should be lowered from a 297 percent APR to a reasonable rate of return.
Fourth, local governments need to act. In October, the Fairfax County Planning Commission is starting hearings on amendments to the Fairfax County Zoning Ordinance placing car title and payday lenders in a separate classification from banks. They are proposing to restrict siting, clustering, and location in stand-alone buildings. Chesterfield County enacted similar ordinances two years ago, but no other local governments have followed suit. Falls Church, Arlington, Prince William, Loudoun and Stafford Counties need to take action as well.
Fifth, the General Assembly has already given localities the authority to limit the density of pawnshops. Fairfax County has passed an ordinance allowing only one pawn shop in each magisterial district. That authority should extend to predatory lenders.
Sixth, the General Assembly should enact legislation specifically prohibiting these businesses from locating near clusters of their favorite targets – active duty military and low-income residents. Given the pending opening of the MGM Grand Casino at National Harbor, some kind of ban within a reasonable distance of a casino should be enacted as well.
With these steps, we can begin to limit the financial destruction and heartbreak that this industry is causing in Virginia.
Scott A. Surovell is the 44th District representative in Virginia’s House of Delegates.