Opinion: Commentary: Small Advances Against Predatory Lending

Opinion: Commentary: Small Advances Against Predatory Lending

Predatory lending — imposing abusive terms and high interest rates on borrowers regardless of ability to pay — is a nagging problem in Virginia, the 36th Senate District and especially in the U.S. 1 Corridor. I will introduce legislation in January to end these abusive practices.

There are many kinds of high-interest or predatory loans. First, payday loans are loans that are secured against a consumer’s paycheck. In 2009, the Virginia General Assembly enacted restrictions on payday loans which caused the practice to scale back to about six locations in and around the 36th District.

In 2010-11, some of the same companies went back to Richmond and persuaded the legislature to authorize car title loans. Today, in Northern Virginia car title loans are offered by companies like Title Max, Loan Max, Advance America, Cash Point or Fast Auto Loans. These companies are allowed to make loans at interest rates between 15-22 percent per month or up to an annual percentage rate (APR) or 267 percent. Several locations have shut down. The number of locations has gone from 21 to 12 around the 36th District.

In 1918, Virginia created a separate license for consumer finance loans to allow small, low-interest loans, largely in the Hampton Roads area. Historically, these loans were not problematic, but around 2014, the car title loan industry discovered this license, which had no interest rate cap and began co-locating consumer finance companies with car title storefronts and making loans at over 300 percent interest rates. In 2016, I introduced legislation to prohibit this practice. A Senate committee killed my bill, but only after the car title industry promised to cease this practice. It appears that they have.

More recently, other companies are abusing two new loopholes. First, Virginia law authorizes lenders to use open-end credit lines with no interest rate caps. Historically, this was not a problem, but payday lending companies have begun to use these open-end credit lines to make high interest loans to the same vulnerable consumers. You can go online today and Google “quick cash Virginia” and get a line of credit between $100-$3,500 with no credit check at a 299 percent interest rate with a 15 percent “transaction fee” annualizing to an APR of over 500 percent.

However, even more egregious is the practice of internet lending. Sensing pending regulation at the federal level, many companies began entering into contracts with Native American tribes to provide loans to consumers over the internet, not from storefronts. The loans have what is called “choice of law” clauses providing they are covered by tribal law and arbitration provisions allowing for dispute resolution under tribal law and under the supervision of the chief of the tribe. Interest rates exceed 400 percent and have been documented over 1,000 percent. These laws are sometimes dubbed “Rent a Tribe” loans.

I will again introduce legislation to apply minimal consumer protections to open-end credit arrangements, the protections previously required for car title loans. Among other things, this would require companies to obtain a license from the Commonwealth, prohibit automatic account debiting, restrict debt collection practices, and simultaneously carrying multiple loans. My bill last year did not even contain a rate cap, yet it was killed. This year, Senate Minority Leader Dick Saslaw is sponsoring this bill with me and I am hopeful it will fare better.

In addition, I will introduce legislation placing a 36 percent interest rate cap on consumer finance loans. This legislation was supported by the companies who have historically been providing consumer finance loans. Last year, it passed the Senate 37-2 but died in the House of Delegates. The House proposed to open up the consumer finance license to internet lenders and basically legitimize the 400 percent internet lending practices using Native American tribes.

I have now been battling these practices for nearly eight years after these lenders exploded on U.S. 1 and I will not stop. Lending money to people who are confused by complicated terms and slick sales tactics, people who have little ability to repay them is coercive, immoral and wrong.

It is an honor to serve as your state senator. Please email me at scott@scottsurovell.org if you have any feedback.