Payday, car-title loan curbs sought

RICHMOND | Virginia would crack down on car-title lenders under new Senate legislation and tighten controls on payday lenders who are getting around new regulations that took effect Jan. 1.

Sen. Mark Herring’s bill, introduced Thursday, would require any company making loans under Virginia’s open-end credit law to charge no more than 36 percent annual interest.

Car-title lenders operate in Virginia under the open-end credit law, which currently allows companies to charge anything they wish as long as they don’t require any payment for the first 25 days.

Payday lenders recently began offering loans and credit under the same law, as they seek to avoid new restrictions that drastically reduced the number of loans borrowers could take out annually.

“Their willingness now to move into this type of loan now shows that they will do what they can in order to extract as much money from borrowers as they can, however they can,” said Mr. Herring, Loudoun Democrat, at a Capitol news conference.

While the General Assembly fought for three years before coming up with the payday lending regulations that passed last year, legislators haven’t taken on car-title lenders before.

Car-title lenders lend up to 50 percent of a car’s value. The borrower, who must own the car, hands over a copy of the keys and the title so the vehicle can be repossessed if he or she doesn’t repay the loan.

The borrower pays so-called membership fees of $50 to $100 to take out the loan. If the borrower repays the loan within 25 days there is no other charge. But if repayment takes longer, the interest ranges from 25 percent to 30 percent per month. Borrowers who can’t repay the loan right away end up paying much more than the original loan, and if they can’t keep up they lose their car.

That’s what happened to Hortensia Edwards, 52, of Virginia Beach.

Ms. Edwards borrowed $2,300 against her 2002 GMC Envoy in 2007. After making a few $300 payments she got sick and spent months in and out of the hospital. She had surgery last June, falling further behind in her payments.

A couple of weeks later her SUV was repossessed in the middle of the night. The company told her she could get it back for more than $7,000.

It was sold at auction in July.

While some legislators are hesitant to rehash the payday-lending fight or to delve into the car-title lending issue, the fact that payday lenders are getting around the new law has prompted some to act.

Payday lenders lend up to $500, holding a paycheck as collateral.

Mr. Herring’s bill says that if payday lenders get into open-end loans, they can charge no more than 36 percent interest. Other bills would prevent payday lenders from getting into open-end loans at all.