Have you ever paid 36 percent interest on a loan or credit card?
Not likely. It’s an outrageous rate, especially given that the actual cost of money is close to zero right now.
But right now, some people in Northern Virginia are paying more than 200 percent on loans secured by their car title. These are people who are both financially desperate and financially unsophisticated, who likely assume that regulation would keep a lender from bleeding them dry with unrestricted interest rates.
Predatory lending is a local issue, with car title lenders congregating in lower income areas like along Route 1 in the Mount Vernon area, and also queuing up near the border with Prince George’s County, Md., where car title lending is illegal.
Earlier this week, a Virginia Senate committee killed a bill that would have capped consumer loan interest rates at 36 percent. It’s hard to believe, but right now there are no limits to the interest rates that can be charged in Virginia. And car title lenders, which are not consumer loans, often have effective interest rates of more than 200 percent.
“Predatory lending is a major problem in the U.S. 1 Corridor,” said state Sen. Scott Surovell (D-36), who introduced the failed legislation to curb predatory lending. “Car title lenders have been abusing this loophole by charging rates over 200 percent. ... To rein in car title lender bait and switch tactics, I am proposing to limit interest rates on consumer finance loans at 36 percent.” But that effort died in a Virginia Senate committee this week.
Between 2010, when the Virginia General Assembly gave the green light to the car title lending industry, the total number of locations more than doubled from 184 to 395.
Some legislators claim this is a free market and personal responsibility issue, that people who have no other options should be able to turn to high interest lending as a last resort. But most people who turn to these loans would be better off without this last resort.
"It's a trap, and although it's presented as a loan it's really loan-sharking," said Jay Speech, executive director of the Virginia Poverty Law Center. "People who get into this end up much worse off than when they started.”
We all pay the price when an industry preys on the poor. People who lose their cars can lose their jobs, then relying on the frayed and inadequate safety net.
Michael Pope, who wrote about car title lending abuses when he worked for the Connection and Gazette Packet, recently completed a multi-part investigative series on predatory lending for WAMU, which you can listen to here: http://wamu.org/the_debt_trap
When his series concluded, the message of the damage of predatory lending seemed to resonate. Legislation to rein in the abuses of 200 percent interest seemed destined to make a difference.
This year, it will not.
Attorney General Mark Herring tweeted, “disappointing, not surprising” on Monday in response to the news that all four bills that sought to limit predatory lending were voted down in committee.
Disappointing, but not surprising. A sad commentary.